Displaying items by tag: value

With the S&P 500 showing a 2.4% increase this year, the market presents a strong opportunity for value investors. These investors typically look for undervalued stocks with strong fundamentals, especially when overall market conditions cause high-quality companies' prices to dip. 

Value stocks are often well-established companies that offer long-term growth potential while being less volatile than growth stocks. Some of the best beginner-friendly value stocks to consider are Berkshire Hathaway, Procter & Gamble, and Target. 

Berkshire Hathaway has shown consistent growth under Warren Buffett’s leadership, making it a solid choice for long-term value investing. Procter & Gamble and Target offer recession-resistant stability, with P&G being a Dividend King and Target leveraging its unique business model to stay competitive and provide consistent returns.

Finsum: P/E ratios suggests that prices might be elevated and for those looking to navigate volatility then value might be the play. 

Small-cap stocks in the U.S. have seen significant gains following Donald Trump’s presidential election victory, fueled by optimism over his economic policies. The Russell 2000 index surged about 6% since the election, outperforming major benchmarks, as investors anticipate benefits from tax cuts, deregulation, and increased tariffs that favor domestic businesses. 

However, concerns are growing that these same policies could stoke inflation, potentially leading to higher borrowing costs for small-cap companies heavily reliant on debt. Analysts note that the Federal Reserve may adjust its pace of rate cuts, further challenging the sector’s growth prospects. 

Despite the Russell 2000’s near 19% gain this year, its valuation—trading at 28.3 times forward earnings—remains high compared to the S&P 500. Experts suggest waiting for market pullbacks before adding small-cap stocks to portfolios.

Finsum: We think when adding small caps to consider the value play in addition to size, lower P/E might have a more long lasting performance.

Value investing has fallen out of favor in a market dominated by FAANG stocks, but there are strong indicators suggesting a revival is possible. Currently, value stocks are priced significantly lower than their growth counterparts, trading at only a fraction of the cost. 

Even though they’ve lagged behind, the core business metrics, such as earnings, have remained competitive with growth stocks, implying the downturn isn't tied to company performance. 

Moreover, in times of rising inflation, value stocks historically outperform, and with inflation likely to stay above central bank targets, this could boost their appeal. Growth stocks shine in long bull markets but tend to struggle in bear markets or early recoveries, making value stocks a safer option during uncertain times.

Finsum:  For those looking to diversify, gradually increasing exposure to value-focused investments could offer solid returns as value stocks regain prominence.

Value investing has underperformed over the last 15 years. Flows have followed this performance, with allocators favoring growth strategies. As a result, the number of practitioners of pure value investing has dwindled, especially in the US. Further, many are questioning, whether, it’s still a viable strategy.

There was some optimism that a period of higher interest rates and economic growth would revitalize value stocks especially following the speculative surge of many growth stocks in 2021. However, this turned out to be fleeting as the boom in artificial intelligence (AI) in 2023 sent many growth stocks to new, all-time highs, undoing value’s brief period of outperformance. 

However, the story is much different from an international perspective, where value stocks have been outperforming for a meaningful period. This lends credence to the argument that value’s underperformance is more about the US and technological disruptions than a change in how markets operate. Disruptive technologies like cloud computing and artificial intelligence have allowed a handful of companies in the US to grow to unprecedented scale, which has distorted the growth vs. value dynamic. 

History also shows that markets adapt to these technologies quite rapidly. Over time, margins and profits compress. The long-term benefits of the technology will be realized by the companies that are able to successfully implement the technology to operate more efficiently. 

Finsum: Value investing has underperformed by a significant degree over the past couple of decades. Yet, it’s a different story from an international perspective. 

Energy has been one of the best-performing sectors YTD with a 10% gain. Energy prices have moved higher due to increased geopolitical uncertainty and strong economic data. Looking ahead, LPL remains bullish on energy and recommends overweighting the sector.

It notes that valuations are quite attractive, especially with producers focusing on cash flow in recent years. In the post-pandemic period, free cash flow yields have averaged 8%, while this figure averaged 4% in the preceding decade. And producers have been using this cash to buy back shares, raise dividends, and pay off debt. 

From a technical perspective, LPL notes the relative strength as the sector has been making new, all-time highs for much of this year. Additionally, there has been strong breadth, indicating broad-based buying pressure. 

Another looming catalyst is that there has been some rotation out of the ‘Magnificent 7’ stocks into cheaper parts of the market, such as energy, financials, and small-caps. Growth stocks have led the market higher for most of the past year, but with valuations extended, there is an increased risk of a pullback or correction.

Finally, investing in energy provides some protection against inflation continuing to linger above the Fed’s desired level and rates remaining elevated as a consequence. Energy also tends to rally when long-term bonds weaken, providing a hedge for portfolios.

Finsum: Energy has outperformed to start the year. LPL remains bullish on the sector due to its attractive valuation, positive correlation with inflation, and relative strength.