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Bargains are hard to find in the New Zealand share market as it is fairly valued overall and the electricity sector has recovered to be trading close to fair value, according to Morningstar.
The research company has 'hold' recommendations on 76 percent of the stocks it covers and has no 'buy' or 'sell' recommendations, though it has seven 'reduce' recommendations.
Morningstar sees Telecom [NZX: TEL] is its "best idea", and says the market may be underestimating the value of the company's turnaround strategy. The shares rose 0.2 percent to $2.695 today.
"We think the strategy will work and initial signs are promising," Morningstar said.
It expects the company to maintain momentum in the mobile market with an aggressive pricing strategy, which is important as mobile contributes 33 percent of retail revenue and is a key for future growth. The sale of AAPT has cleaned up the group structure and reduced risk.
"A strong balance sheet provides scope for the company to consider new capital management initiatives during the next 12 to 24 months, assuming delivery of operational and cost savings target," Morningstar said.
Fletcher Building [NZX: FBU] is the most expensive stock Morningstar covers, trading at 1.36 times fair value.
The health sector has good long-term fundamentals due to the ageing population but Ryman Healthcare [NZX: RYM] and Ebos Group [NZX: EBO] are expensive. Fisher & Paykel Healthcare [NZX: FBH] looks to be reasonable value because it is trading at 0.94 of Morningstar's fair value estimate.
Stock selection is important in a share market that is currently fairly valued, the research company said.
SkyCity looks to be the best value but is not rated as a best idea by Morningstar.
"We still believe the market is underestimating the benefits of the Adelaide and Auckland casino expansions," Morningstar said.