With the stock market in the United States on pace to end the year with a gain of almost 30 per cent, including dividend payouts, fund managers are finding themselves searching for stocks that have been largely ignored as they head into 2014. The only problem - they are finding slim pickings. The average stock now looks expensive by historical measures. The trailing price-earnings ratio of the S&P 500 Index has crept up from below its long-term average of 15 at the beginning of the year to 18.5 now. "It's getting tough to find anything out there worth investing in when everything looks expensive," said William Mann, a co-manager of the Motley Fool Independence Fund. The Federal Reserve said last week that it would cut its monthly bond-buying stimulus in January by US$10 billion to US$75 billion, reducing the influx of easy money that has helped push stocks broadly higher. While the announcement has actually only helped stocks thus far, strategists say further reduction in the central bank's stimulus could push bond yields higher. That would make stocks less attractive for the income-focused portfolio managers who, Bank of America Merrill Lynch estimates, make up about 40 per cent of the fund universe. As a result, some fund managers are moving into out-of-favour companies, ranging from US steelmakers to Italian banks, on the theory that these unpopular stocks will offer more upside than the broader market in the new year. If they are right, then it could be a sign that the bull market that began in March 2009 is edging closer to its end. Value funds, which tend to focus on out-of-favour stocks, typically outperformed momentum-focused growth stocks in the second half of bull markets, said Lipper, a Thomson Reuters firm. For instance, in 2006, the fourth year of a bull market that ended in 2007, value funds (defined as those that look for bargain stocks that often pay dividends) returned an average of 17.3 per cent, while growth funds (those that look for stocks with momentum) gained an average of 8.5 per cent. This year, value funds gained an average of 34.2 per cent, compared with a 36.1 per cent jump in growth funds. Both categories are beating the wider stock market. The S&P 500 Index was only expected to gain 8 per cent in 2014, a poll showed. If that more sober outlook turns out true, it leaves plenty of room for mistakes on the downside. Few see the stocks that have led the market this year continuing their run. Netflix, for instance, will likely end the year as the top-performing stock in the index with a more than 300 per cent gain. Best Buy, which flailed in 2012, jumped 254 per cent for the second-largest gain. Cyclical growth stocks like Boeing, Delta Air Lines and TripAdvisor each shot up 80 per cent or more. That is leading some strategists to say investors should focus more on less-loved stocks and sectors in the coming year, provided they have sustainable businesses. With corporate cash stockpiles near record levels, David Kostin, chief equity strategist at Goldman Sachs, expects S&P 500 dividend payouts will increase faster than earnings. As a result, he recommends firms that he expects to raise dividends in 2014 such as AT&T and Cisco Systems. Commodity-sensitive stocks and European industrials are among the stocks attracting contrarian investors lately. "In this market, we're finding more opportunities in specific companies whose industries are in decline," said James England, a portfolio manager of the Meridian Contrarian Legacy Fund.