Over the last few years, investors have been putting the FTSE 100’s underperformance down to the UK’s lack of big tech companies. But that could be set to change.
A stock market rotation away from software and into materials has already pulled the FTSE 100 to parity with the S&P 500 over the last five years. And there might be more to come.
The Little Red Hen
In the story of The Little Red Hen, none of the title character’s friends wants to help with the work involved in making bread. But they’re interested in eating it.
The story doesn’t end well for them – those who don’t participate when there’s work to be done don’t get to join in with eating the bread. And there’s a lesson here for investors.
Amazon and Microsoft were very popular with investors when their earnings were growing rapidly. But huge artificial intelligence (AI) spending means it’s a different story now.
By contrast, the likes of Antofagasta and Anglo American are in fashion as the materials needed to build data centres are in high demand. That however, is a recent development.
There’s a good case for thinking that Amazon and Microsoft are planting the seeds for some huge cash generation in future. But there’s always a risk those seeds won’t grow.
Equally, it might well not be too late to consider buying Antofagasta and Anglo American. But investors who have been patient with these stocks are now demanding high prices.
Growth prospects
So where can investors look to find opportunities in today’s market? One of the names I’m looking to buy for my portfolio in March is Judges Scientific (LSE:JDG).
Demand for scientific instruments has fallen away since the end of the pandemic. And the US government’s move to cut back on research funding has taken things down further.
On top of this, the firm has had a recent change of CEO, which might be disruptive to the strategy that has served it so well to date. That’s an important risk to consider.
As a result, investors don’t want to know and the stock now trades at much lower valuation multiples. But there are some very strong signs that a recovery might be on the cards in 2026.
The US Congress has rejected the proposed cuts to the National Institutes of Health. Instead, a $415m increase has been included, removing uncertainty and also boosting funding.
That’s extremely positive for the company’s overall outlook, but the little hen’s bread isn’t starting to show up yet. And that’s why I’m looking to buy it today and wait.
Stock market rotation
I think the established order of the stock market over the last few years is starting to shift. And if I’m right, that could be a very good thing for UK stocks that have been out of favour recently.
Rather than the stocks that have been climbing recently, I’m looking for those that might be next to move. And the latest developments in the US mean Judges Scientific is on my list.
