It’s been a long time since value investors had real bargains outside the United States. For the better part of the past decade, the U.S. market has been the world’s locomotive, pulling portfolios higher with relentless earnings growth, endless liquidity, and a stream of capital that treated American equities like the only game in town. But tides have a way of turning quietly. According to a new report from J.P. Morgan Asset Management, “Narrowing the gap: U.S. exceptionalism and developed markets,” the dominance of U.S. stocks is starting to lose its absolute stranglehold.
The U.S. has had structural advantages that were real and powerful. The dollar’s reserve status, the depth of American capital markets, an innovation ecosystem that attracts global talent, and energy independence all helped justify premium valuations. But valuations have run so far ahead that they’re now pricing in perpetual exceptionalism. With the S&P 500 trading at elevated CAPE ratios, price to book multiples well north of historical averages, and mega cap earnings increasingly dependent on narrow leadership, the risk/reward calculus for buying broad U.S. equities at current levels has shifted unfavorably.
Meanwhile, the rest of the developed world hasn’t been standing still. Europe, the UK, and Japan are not only cheaper but they’re entering a period of macro divergence that could act as a tailwind for relative performance. Central banks outside the U.S. are moving toward easing just as the Fed finds itself hemmed in by sticky services inflation and an election season policy trap. The European Central Bank has already cut once and is likely to do more as growth falters but inflation normalizes. The Bank of Japan is delicately normalizing policy while keeping rates at levels that support both corporate restructuring and a fundamentally cheap currency. In other words, monetary policy abroad is becoming more equity friendly at a time when the Fed is constrained.
Valuations reflect that divergence starkly. European equities are trading at CAPE ratios roughly half those of the U.S. UK stocks remain mired in investor neglect, with price to book ratios still below 1 for broad swaths of the market and dividend yields that dwarf their American counterparts. Japanese equities, despite their rally, still trade at far more attractive valuations than the U.S., and the ongoing corporate governance reforms are finally forcing companies to unlock balance sheet cash and improve shareholder returns. When you combine cheap valuations with policy tailwinds, the setup looks remarkably similar to the early stages of previous periods when international markets outperformed the U.S. for years at a time.
Currency dynamics add another layer. The dollar has been strong for years, but interest rate differentials are narrowing, fiscal policy is stretched, and capital flows are becoming less one sided. If the dollar weakens, U.S. investors get a kicker on top of local market returns in places like the UK, Japan, and the Eurozone. That’s exactly the kind of dual tailwind (cheap entry points and potential currency upside) that deep value investors live for.
The contrarian playbook here is straightforward. While the crowd remains locked into expensive U.S. benchmarks and momentum chasing the Magnificent 7, value investors should be quietly accumulating high quality companies and funds in the UK, Japan, and Eurozone. British banks, European industrials, Japanese manufacturers, infrastructure plays, and dividend rich stalwarts are trading at valuations that would make Benjamin Graham smile. The world doesn’t need the U.S. to collapse for this to work. It only needs the gap to narrow, and history suggests that’s exactly what happens when valuation differentials, policy paths, and currency trends line up the way they are today.
U.S. exceptionalism isn’t over, but paying top of the cycle prices for yesterday’s outperformance is rarely a winning strategy. The bargains are overseas, hiding in plain sight. For deep value investors willing to do the work, developed markets ex U.S. are setting up to be the next great hunting ground.
3 Developed Market Stocks Trading at Bargain Prices
Here are 3 developed market stocks that are earning high returns on capital but trading at bargain basement prices. As capital flows begin to move out of the U.S. markets and look for a new home abroad, these 3 could see the kind of buying pressure that creates spectacular returns.
Admiral Group (Ticker: AMIGY): The Disciplined Comp Underwriter the UK Keeps Mispricing
Admiral isn’t a story stock. It’s a blocking and tackling British motor and household insurer that has compounded value for years by underwriting conservatively, pricing with discipline, and handing cash back to owners. When the UK motor cycle hardened, Admiral’s combined ratio and reserve prudence separated it from weaker peers. That creates an old fashioned spread between underwriting profit and investment income that the market tends to forget exists until it shows up in special dividends. The balance sheet is clean, the culture is owner minded, and the cash conversion is excellent. At today’s multiple, you are not paying for perfection in a business that rarely swings for the fences and still scores. If we’re right about the gap narrowing between the U.S. and developed markets, steady compounders like Admiral will be rerated first because the path from premiums to distributable cash is short and visible. I like this as a core UK financial holding with income and optionality from further cycle normalization.
Daito Trust Construction (Ticker: DIFTY): Japan’s Boring Wealth Machine Hiding in Plain Sight
Daito builds and master leases apartments, then sticks around to manage them. It’s not glamorous, but it is a high return, cash rich model tied to recurring fees and long contracts. For decades, investors punished anything tied to Japanese property. Governance reform and capital discipline are changing that, and Daito is a beneficiary. Earnings are sturdier than the label suggests because leasing and management temper construction cyclicality. The ADR trades where the market is still discounting yesterday’s Japan rather than today’s shareholder push. You get a quality balance sheet, strong free cash flow, and a management team with a track record of paying out. As rates normalize from microscopic to merely low, the equity risk premium compresses and businesses with real cash economics get noticed. This is exactly the kind of mid cap compounder institutions rediscover late in the cycle, paying you to wait while they do.
Pandora A/S (Ticker: PNDRY): Cash Spinning Global Brand at a Value Multiple
Pandora sells affordable luxury with ruthless supply chain control. The engine is bracelets, charms, and repeat purchase behavior that behaves more like a subscription than jewelry. Management fixed mix and merchandising, invested in brand, and expanded higher ticket lines like lab grown diamonds, all while keeping capital intensity low. That combination throws off fat free cash flow that funds buybacks and dividends. The U.S. investor base still treats it like a cyclical European retailer rather than a global brand with pricing power and a direct customer relationship. The ADR sits at a valuation that assumes the next stumble is around the corner; the balance sheet and cash returns say otherwise. If the dollar cools, U.S. investors get a currency tailwind on top of a self help story that is already working. I’m happy to own a cash machine at a market multiple when the business earns a premium multiple on fundamentals.
This isn’t about heroics. It’s about buying durable cash producers in markets everyone ignored while they chased U.S. mega caps. Admiral gives you a resilient UK financial with a proven dividend habit. Daito is Japan’s quiet compounding machine levered to governance and capital return reform. Pandora is a European brand that mints cash and still trades like a shopkeeper. None require blue sky assumptions or perfect macro. They just need the market to stop penalizing anything that isn’t listed on the Nasdaq.
