The next winners in global equities may be hiding in the market’s most ignored corners

Global equity markets are once again brushing against record highs, but the rally is anything but broad. The gains are being driven by a narrow cohort of mega-cap stocks, particularly those tied to the AI narrative, while large parts of the global market have been left behind. 

From Wall Street to Frankfurt and Tokyo, investor enthusiasm has become increasingly concentrated, leaving value investors with a growing universe of neglected opportunities.

According to John Goetz, Co-Chief Investment Officer at Pzena Investment Management, this widening gap between market sentiment and underlying fundamentals is precisely where long-term value is born.

“While many investors continue bidding up the prices of a select group of stocks, we remain focused on investing in companies with heavily discounted normalised earnings power,” says Goetz. 

He argues that investors may be overpaying for perceived AI winners while overlooking businesses that could benefit more sustainably from AI implementation, through productivity gains, margin improvement, and cost efficiencies.

“Economic and trade uncertainty, along with company-specific issues, have led to a lack of near-term earnings visibility for numerous stocks. We believe we can exploit this through fundamental research and a long-term investing approach.”

In other words, the path to superior returns may not lie in chasing the future everyone is talking about, but in uncovering the opportunities the market has chosen to ignore.

Market highs are masking deep value

Global equity indices may be breaking records, but that strength is heavily concentrated. 

“Extreme index concentration and elevated dispersion between individual stocks have provided a fertile hunting ground for disciplined value investors seeking to buy excellent franchises trading at highly discounted valuations,” says Goetz.

In the U.S., he notes, valuations are not uniformly stretched. In fact, “U.S. large-cap value is currently the cheapest region under our coverage,” despite the perception of widespread overvaluation. 

At the same time, the most expensive quintile of stocks, dominated by AI beneficiaries, is trading near historic highs.

Goetz warns that some of today’s market darlings are priced for near-perfection. 

“AI infrastructure players - notably NVIDIA - have valuations reflecting overly optimistic assumptions about how current capex will translate into long-term earnings. 

We will continue to avoid investing in these companies until their valuations reflect more realistic expectations for AI demand and profitability.” 

Why pessimism is creating opportunity

While parts of the global market are trading near record valuations, Goetz argues that the most attractive opportunities are emerging in sectors investors have abandoned.

“The largest sector in our global portfolio is financials,” he says, noting that exposures have shifted toward less credit-sensitive areas such as insurance, asset management, and wealth management.

More striking is Pzena’s conviction in healthcare. 

“Healthcare has become our second-largest sector exposure,” Goetz adds. “A confluence of factors has depressed valuations across the sector, making our health care exposure the highest it has been in 20 years.”

Rather than treating challenges such as inflation, regulatory reform, or operating cost pressures as reasons to avoid these companies, Goetz sees them as catalysts for market mispricing.

“We believe the management teams of our holdings - including Medicare Advantage insurance providers, pharmaceutical companies, a dialysis service provider, a hospital group, and medical device companies - have credible plans to navigate these challenges and return the businesses to their historical earnings power.” 

Crucially, these opportunities are emerging across regions, not in a single geographic pocket. 

Pzena’s analysis shows that U.S. large-cap value currently trades at the lowest valuations globally, while Europe and Japan also offer meaningful discounts within the cheapest quintile of stocks. 

Meanwhile, emerging markets exhibit some of the widest valuation dispersions between expensive and cheap companies, signalling profound mispricings.

For Goetz, this growing dispersion is not a warning sign; it is an open invitation. It rewards investors who are willing to look past index heavyweights and focus on the fundamentals of individual businesses.

The checklist for finding tomorrow’s winners

Goetz outlines a disciplined approach for assessing companies that have underperformed:

• Focus on the cheapest quintile: “This provides a margin of error should conditions deteriorate.”
• Rely on deep fundamental research: “We aim to develop a comprehensive understanding of a company’s operations, long-term earnings drivers, and material headwinds impacting earnings.”
• Stress-test balance sheets: “Testing a company’s solvency and liquidity allows us to more confidently assess whether financial constraints could impair the business’s long-term prospects.”

This method is not about speculating on a rebound; it’s about identifying companies where sentiment has overshot reality.

“Our goal is to build a portfolio of thoroughly researched companies that we believe have asymmetrical performance outcomes, skewed to the upside.” 

Two stocks left behind – but positioned for a turnaround

Baxter (NASDAQ: BAX), a leading global provider of hospital equipment, has seen its share price fall nearly 80% from its peak. 

According to Goetz, this has been driven by “four temporary challenges”, including fixed-price contracts signed before inflation and a temporary halt in shipments of its new infusion pump. 

Yet Baxter's entrenched position in hospital operations and concentrated supplier base provide durable competitive advantages. 

“We view these headwinds as transitory and expect investor confidence to return over time.”

Another example is Daimler Truck (FRA: DTG), which was spun out of Mercedes-Benz in 2021. 

Despite near-term tariff concerns and cautious guidance, Pzena believes management's restructuring efforts will improve margins. 

The company's leading market position also gives it pricing power across economic cycles.

“We believe the company will be able to mitigate the impact of tariffs by shifting more production to the U.S. and passing through price increases along with the broader industry.”

These companies are not speculative turnarounds; they are high-quality businesses temporarily out of favour.

Why long-term investors are being rewarded for patience

Periods of high dispersion and market concentration have historically preceded strong value outperformance. 

Today’s divergence between the most expensive and cheapest stocks is near historic extremes, signalling that a shift in market leadership may already be underway.

As Goetz puts it, “We seek to purchase good businesses trading at substantial discounts, often taking advantage of price dislocations prompted by extreme fear and pessimism." 

It is in these dislocations, not in the crowded corners of the market, where disciplined investors may find tomorrow’s leaders.

For contrarian investors, the greatest opportunities may not be found in the stocks everyone is talking about, but in those almost no one is willing to consider.