Displaying items by tag: value investing

Stocks whose prices trail their implied intrinsic value are often seen as attractive investments primarily due to their undervaluation. But a recent article by Vanguard suggests another reason value stocks may be worth considering now. Historically, value stocks have outperformed their “growth” counterparts in times of economic recovery.

The report quotes Kevin DiCiurcio, CFA, head of the Vanguard Capital Markets Model® research team, as he makes the case. “So, if you believe that the Federal Reserve may have engineered a soft landing—that we’re going to sidestep a recession and that the economy’s next move is an acceleration—the case for value is strengthened.”

According to their research published in August, 2023, Vanguard estimated that value stocks were priced more than 51% below their fair value prediction. They stated, “It’s well-known... that asset prices can stray meaningfully from perceived fair values for extended periods. However, as we explained in (previous research), deviations from fair value and future relative returns share an inverse and statistically significant relationship over five- and 10-year periods.”

This observation adds one more reason value stocks are worth a look. In addition to favorable valuations and historically consistent dividends, the possibility that value stocks may shine during the coming economic recovery many anticipate, is another factor to consider. Whether held directly, within a passive allocation, or as part of a Separately Managed Account, now is a perfect time to revisit the case for value stocks in your client’s portfolios.

Finsum: Vanguard's research highlights value stock historical outperformance during economic recoveries.

Stocks whose prices trail their implied intrinsic value are often seen as attractive investments primarily due to their undervaluation. But a recent article by Vanguard suggests another reason value stocks may be worth considering now. Historically, value stocks have outperformed their “growth” counterparts in times of economic recovery.

The report quotes Kevin DiCiurcio, CFA, head of the Vanguard Capital Markets Model® research team, as he makes the case. “So, if you believe that the Federal Reserve may have engineered a soft landing—that we’re going to sidestep a recession and that the economy’s next move is an acceleration—the case for value is strengthened.”

According to their research published in August, 2023, Vanguard estimated that value stocks were priced more than 51% below their fair value prediction. They stated, “It’s well-known... that asset prices can stray meaningfully from perceived fair values for extended periods. However, as we explained in (previous research), deviations from fair value and future relative returns share an inverse and statistically significant relationship over five- and 10-year periods.”

This observation adds one more reason value stocks are worth a look. In addition to favorable valuations and historically consistent dividends, the possibility that value stocks may shine during the coming economic recovery many anticipate, is another factor to consider. Whether held directly, within a passive allocation, or as part of a Separately Managed Account, now is a perfect time to revisit the case for value stocks in your client’s portfolios.

Finsum: Vanguard's research highlights value stock historical outperformance during economic recoveries.

(New York)

The market may be way up this year, but there are still some great values out there. The average P/E ratio of the S&P 500 is 16.7, yet 67 of the companies in it trade at below 10, triple the amount of five years ago. Here are a handful of blue chips that are very cheap, but have strong market positions, decent profitability, and nice growth positions: Delta Airlines, Bank of America, Kroger, homebuilder Lennar, and BorgWarner, a maker of car components.

FINSUM: These seem like great picks, but they also appear to be the victims of the long-term decline in value investing. Investors keep thinking value investing will bounce back, but it hasn’t.

(New York)

Are you looking for places to ride out the current storm in markets? It is a tough time to be doing so, as even traditional bastions of safety—utilities, healthcare, and consumer staples—have been deeply wounded lately. Here is one you probably haven’t thought of—Berkshire Hathaway’s stock. The captain of the Berkshire ship, Warren Buffett has long been a master of profiting in down markets, and with the company’s $100 bn in cash, the combination looks appealing. One CIO put it this way, saying “As a long-term Berkshire holder, this is the kind of environment that you hope for given all the cash … I love the risk-reward, embedded safety, and diversity of the earnings flows”.

FINSUM: Berkshire is not the kind of stock that is going to get hammered in down markets, and it would seem to have a lot of upside in such environments. Seems like a potentially good buy.

(London)

American investors tend to be focused on US stocks, which over the last several years has been very fortunate. However, there are potentially great discounts to be had overseas. Barron’s has just picked five overseas bargain equities, borrowing from fund manager Dodge & Cox. According to the CIO of Dodge & Cox, “There’s very strong secular growth in some regions outside the U.S. … If you want to participate, you need to own local-market stocks”. The picks are Itau Unibanco Holdings (Brazil), South African media company Naspers, and French drug company Sanofi. They also like DISH Network and Google at home.

FINSUM: So there are obviously great bargains to be had overseas, but we think it takes a real focus to understand the dynamics integral to picking shares in such different markets. Funds that specialize in doing so seem like a good idea.