Markets have been quite unsettled of late due to the uncertainty regarding the budget stand-off on Capitol Hill.
The most recent market reports indicate that House Republicans may bring a bill to raise the federal government's debt limit for six weeks to the floor in an apparent bid to avoid further disruptions to financial markets.
Nevertheless, even if that does turn out to be the case it would still leave a simmering debate on the table.
That comes as the October 17th deadline to raise the debt-limit looms ever closer and jitters in short-term credit markets have recently spiked - a potentially very troubling development for financial markets. Some analysts have called it simply "irresponsible" to even think of passing that date without an agreement.
On October 4th, Simon Gergel, Chief UK strategist at Allianz, spoke to Sharecast regarding the current situation.
In his view the debate is "very polarised" in Washinton D.C. In that regard, he references the current programme of sequestration, under which all government expenditures are reduced across-the-board, which is a not a good way to run the US economy, he muses.
For that reason, he explained that: "I suspect markets will react so strongly that they will ultimately reach an agreement. I do not think they will default."
However, he added that: "There is a risk that they will go to the 17th and even a little bit beyond [...] but who knows?"
Moving on to his style when it comes to running Allianz Global Investors´ Merchants Trust PLC and Allianz UK Equity Income fund, he declares himself a "fundamental value-oriented contrarian investor".
More specifically, when analysing companies he looks at the strength of their balance sheet, studies their competitive position, financial ratios, barriers to entry and management structure amongst other aspects.
Cash is King
Helping him in his task are another 26 analysts and the services of a market research company.
Perhaps most interestingly, he believes that: "The price you pay for an asset has a very strong link to the return you get [... when you] buy something cheaper you tend to make a better return, when you buy a stock with a high yield you tend to do better on average."
Are there any particular financial ratios which he follows? If forced to choose only one he goes for a firm's free-cash-flow. "It is much harder to manipulate than revenues or net profits [...] different accounting policies allow for the manipulation of accounting profits or revenues," he explained.
Where do the opportunities lie?
Against the backdrop of the aforementioned jitters and the fact that economic growth in the United States is essentially zero-bound he suggested to investors that taking a look at the following stocks might be worth their time: Big oil companies Balfour Beatty and United Business Media.
Nevertheless, he proffered a caveat: "Its tricky, there has been quite a strong [equity] market recovery while growth has remained lacklustre while valuations have risen generally.
Having said that, big oil companies are quite cheap Gergel believes, when measured in terms of their dividend yields and cash-flows.
As specific recovery situations in the UK go, he highlighted Balfour Beatty.
"Its US construction business is doing well and its international engineering consultancy is strong, while UK construction remains very depressed."
The latter market is where is he detects an under-appreciated potential in the stock.
Gergel also declared an interest in companies such as Hansteen Holdings. In his opinion City properties have been re-rated [lower] but industrial properties are now underappreciated and a bit of a 'niche'.
He also still sees value in media companies, albeit not so much in ITV, as some other analysts have recently told Sharecast, but rather in UBM.
Forty percent of its profits originate from emerging markets (EMs), and it specialises in big exhibitions, which are very profitable. Since they are the leader in this segment they also tend to attract key participants.
In turn, many of these tend to pay twelve months in advance, so its cash flow is "really good."
"[The company] has quite a good business model and very high returns."
In a less positive vein, he declares himself "less keen" on miners than others - hence his very modest holdings in that space. In particular, to take a view on mining you have to a have a view on iron ore, which is dominated by Chinese demand.
Yet he references Australian capacity which is on the rise and the fact that he does not have much confidence about the future robustness of Chinese demand to defend his stance, despite what appears to be the "quite modest" valuation of the shares.
Lastly, and as regards to energy utilities in the UK, he believes it will be difficult for Labour to deliver on its proposals for a price cap, "as so much of the price isn´t due to profits but costs, environmental costs, which he [Milliband] put into train."
The sector's medium-term prospects depend on the probability of Labour winning the next elections, on how feasible its proposals are in practice - "quite hard to call if there is an opportunity in the short to medium-term."
In the long-term nevertheless he does see value, even if it is because "perversely" in the long-term less power stations are positive, in so far as that will lead to higher prices.