The 2015/16 financial year wasn’t the greatest for the S&P/ASX 200 (Index: ^AXJO) (ASX:XJO), with the main index delivering a negative return of around 4%.

The combined performance of the 20 largest stocks by market capitalisation was, unfortunately, far worse with the S&P/ASX 20 (Index:^AXTL) (ASX: XTL) falling by around 13.4% (excluding dividends).

From the top 20 stocks, only six finished in positive territory with Scentre Group Ltd (ASX: SCG), CSL Limited (ASX: CSL) and Transurban Group (ASX: TCL) being the strongest performers.

At the other end of the spectrum, BHP Billiton Limited (ASX: BHP), Australia and New Zealand Banking Group (ASX: ANZ) and QBE Insurance Group Ltd (ASX: QBE) were the worst performers and recorded share price falls of more than 25%.

Overall, it was a pretty disappointing performance from the ‘blue chip’ stocks when you consider many of their smaller counterparts performed noticeably better.

Investors must now question whether or not some of these companies are in bargain territory relative to the rest of the market.

While it’s true that many of the top 20 stocks appear undervalued compared to the broader market, I believe many of them still face an uphill battle over the next 12 months.

For example, the major miners, BHP and Rio Tinto Limited (ASX: RIO) still face the prospect of excess supply in the iron ore market. Although prices look to have stabilised recently, it is virtually impossible to predict where the price of iron ore goes from here and exactly how demand from China will play out over the next 12 months.

BHP, along with Woodside Petroleum Limited (ASX: WPL), also faces the possibility of another 12 months of subdued energy prices and this means dividend payouts are unlikely to increase drastically over the next period.

The supermarket operators, Wesfarmers Ltd (ASX: WES) and Woolworths Limited (ASX: WOW), are also facing headwinds of their own. Price deflation and increasing levels of competition are just two of the major issues both operators will have to continue to grapple with in the short term.

Moving into the financials, there is no doubt the major banks look attractively priced compared to the broader market. Despite this, I would still remain cautious on the sector overall as earnings growth is likely to remain subdued over the next 12 months. Net interest margins remain under pressure, bad debts have been rising and they are highly leveraged to the Australian residential property market which is starting to show signs of weakness in some areas.

Even my only holding from the top 20, Macquarie Group Ltd (ASX: MQG), could be in for a tough period if global markets remain volatile and Brexit concerns continue to drag on.

QBE Insurance Group Ltd (ASX: QBE) faces the prospect of another 12 months where it will find it extremely difficult to increase the returns on its investment portfolio. The US Federal Reserve looks increasingly unlikely to increase interest rates as a result of recent events and this could remain a drag on QBE’s share price independently of how its insurance business performs.

Telstra Corporation Ltd (ASX: TLS) is another stock that is unlikely to significantly grow its earnings per share over the next 12 months and it appears investors will be pinning their hopes on another RBA rate cut to push the share price higher.

Defensive shares like CSL, Transurban, Scentre Group and Westfield Corp Ltd (ASX: WFD) are some of the highest quality shares on the ASX, but they are far from being bargains. Investors have already identified these shares as being the best of the group and I don’t think they are currently undervalued relative to the rest of the market.

Foolish takeaway

Even though many of the top 20 stocks have underwhelmed investors over the last 12 months, there isn’t a stand out buy, in my mind, at the moment.

With that said, investors should watch this space closely as there will be a point where value begins to emerge for contrarian investors.

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Motley Fool contributor Christopher Georges owns shares of Macquarie Group Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.