Displaying items by tag: Growth

(New York)

It has been for around a decade that value stocks have been getting hammered by growth stocks. The rut has been so bad that many have given up on the discipline altogether. But recently, something has been changing. Momentum stocks, long the darling of this bull market, have started to lag their value-oriented peers. This change started last week and is continuing today, and follows the worst month for value stocks in at least 20 years (this past August).

FINSUM: This is an encouraging sign, but certainly is not enough to say “value stocks are back!”.

(New York)

The rate cut is not like investors hoped. While the key rate was cut 25 basis point, it did not come with a wealth of dovish future guidance. Still, the cut is going to make a big impact in certain areas, not the least of which is in growth stocks. Growth stocks are likely to pull further ahead of value stocks as “In an environment where rates indeed go lower, growth stocks are just mathematically worth more”, according to MFS strategist Rob Almeida, continuing “So the terminal value for a growth company is higher, because of the discount rate, than it is for a cyclical company”.

FINSUM: The truth is that growth stocks have been doing so well because their growth is real and not just financial (just look at P/E ratios versus the Dotcom bubble). The rate cut will help keep the engine going.

(New York)

For many years, emerging markets were a must-have in every investors’ portfolio. The idea was that a large swath of the world was on an inevitable path towards economic parity with the west, and that there was a great deal of money to be made by investing in that growth. For several years, that view held. However, changes over the last decade mean that such a thesis is increasingly in doubt as many of the factors that drove EMs have fallen away. In the words of the Financial Times, “high commodity prices are a fading memory. Trade is stuttering and global supply chains are being disrupted. Far from catching up with the developed world, many supposedly emerging markets are growing more slowly”.

FINSUM: It is not just economic either. Governments have not cleaned up as fast as many had hoped, which means the law and governance aspect of EMs has hardly improved.

(New York)

A lot of of investors don’t really know what to do with Wall Street equity research. While certain analysts are very insightful, the misaligned interests and intentional underestimation sometimes make it hard to separate what to listen to from what to ignore. However, there is a clear way to make purchases based on Wall Street forecasts—when there is a heavy consensus on a stock, buy it. The key signals to look for are when price targets are similar across all analysts, and when all are saying “overweight” or buy. Such occurrences are not as common as many might think, but they are very potent when they do appear.

FINSUM: This makes some sense as equity research analysts are a reflection of the general sentiment amongst institutional investors. If all seem to be positive, then the underlying feeling on that stock is bullish.

(New York)

One of the biggest banks in the country has just offered a very bullish view. BAML says the US will avoid a recession. The comments come from the bank’s CEO, Brian Moynihan, who believes that growth will slow, but then flatten out and not go into a recession. “Everything we see in our customer base is consistent with a slowdown to 2% and a flattening out from there”, he says.

FINSUM: We found these comments to be genuinely interesting because BAML has a view on the economy that few do. Not only are they the largest consumer bank, but also the biggest mortgage lender. That means they can watch the pace of deposit growth and borrowing in a very direct way, and thus can take the economy’s pulse.