Eq: Value (83)
Value stocks are usually sought after for their relatively cheap prices trading at low P/E ratios or below book values. They had been on a near decade-long losing streak that culminated in the Pandemic crisis, which drove investors to the lofty tech-based growth stocks, but things turned around for value in September 2020 but were once again stalled out by the delta variant. However, as the economy begins to once again stabilize value is coming back with a vengeance. Bankruptcy concerns and thin profit margins are no longer fears, and value is at the ultimate discount. Research Affiliates, and investment strategy firm, value is poised to return between 5-10% in the coming decade. Global vaccine rates are making progress and cyclical sectors and hence then value sectors are going to turn around the way they started to in September 2020.
FINSUM: Value’s comeback seems inevitable, the ultra-low prices are out of wack stability will see value outperforming other factors in the upcoming year.
The Fed is beginning to talk tapering and that has sent treasury yields spiking to 3-month highs (since before delta was spreading rapidly). The treasury yield spike has sent Growth stocks, such as in the technology sector, tumbling. Investors caught in the middle have flocked to value stocks, such as energy and financials. These stocks have cyclical reopening qualities and investors are singing the same reflationary trade song from back in May. However, growth doesn’t look quite as sluggish, and this might keep these stocks rolling a bit longer. Supply side factors in energy in particular will keep value strong beyond interest rates falling or inflation being more than transitory.
FINSUM: Value needs this middle zone of moderate inflation and moderate growth. If either fall off or pick up too much it could push investors back into growth or push the whole market down!
Treasury yields sank last week, before rebounding strongly late in the week…see the full story on our partner Magnifi’s site.
Expensive stocks are the norm these days as P/E ratios are near all-time highs…see the full story on our partner Magnifi’s site.
General Electric is a withered giant. Sure, it has ridden the comeback since the start of the pandemic, but it's so far off the $30 price tag of five years ago. However, Goldman Sachs sees a better future in the tea leaves for GE. In a memo to investors, Goldman set a $16 price target for GE and sees it as a ‘self-help’ success story. Goldman alludes to the repaired finances and leverage under the CEO Larry Gulp. Additionally, a global recovery, higher energy consumption, and better margins could push their stock higher, potentially a $20 price target. Earning projections remain strong for GE through the end of the year.
FINSUM: General electric is in a solid cheap position and Goldman might have been on to something as the stock lifted to $13 early in the week.
The U.S. economy could be running as hot as ever, particularly when it comes to price pressure…see the full story on our partner Magnifi’s site
Markets have been turbulent over the last month but overall 2021 couldn’t be…see the full story on our partner Magnifi’s site
The conventional wisdom in markets has always been that large caps hold up better in periods of volatility, and small caps outpace in returns when markets start to recover. The reality, however, is far different. If you take a look at a series of turbulent periods of the last few decades, you can see a clear trend: midcaps actually perform better. They suffer similar losses during periods of volatility, but actually recover faster than both “domestically-focused” small caps and “mature” large caps. In periods of high volatility, midcaps have fallen by 41% on average, slightly less than large caps at 42.93% and small caps at 45.05%. In periods of recovery, it has taken midcaps only 304 days to recover versus 544 for large caps, and 432 for small caps.
The data highlights the significant outperformance of midcaps versus their peers. So how can investors best commit capital to midcaps? Take a look at State Street’s SPDR S&P MIDCAP 400 ETF.
n.b. This is sponsored content and not FINSUM editorial.
Many Airlines saw increases in stock prices on Monday as increases in bookings for spring and summer leisure trips…see the full story on our partner Magnifi’s site
Starting with the huge gains of tech shares over the summer, and now the whole index, investors have grown increasingly uneasy with market valuations. By some metrics, markets are as stretched valuation-wise as they have ever been. Take for instance Robert Shiller’s famed CAPE ratio. As it stands now the S&P 500 has a CAPE valuation of 33.4x. That is the highest it has been since 1929 and almost double the long-term average of 17x. ”There are great expectations built into this market … We are in the seventh inning of Federal Reserve-supported equity markets”, says the CIO of CIBC Private Wealth Management.
FINSUM: As scary as the valuations are, they are not entirely irrational given the level of stimulus and the way the economy has held up.
With markets at all-time highs, but COVID restrictions tightening and the potential for a blue Senate looming, many advisors are feeling that now might be a good time to retreat into value stocks. Lower priced stocks have done very well over the last couple of months, showing good momentum on top of their theoretical valuation insulation. With that in mind, here are three very highly ranked large cap value mutual funds. The first is American Funds’ Washington Mutual Investors Fund Class A (AWSHX), sporting an expense ratio of 0.59% and an average three-year return of 9.7%. The second is the MFS Equity Income Fund Class A (EQNAX), which holds a more diversified group of securities, including some international stocks and convertibles. Finally, check out the Fidelity Equity-Income Fund (FEQIX), which tends to focus on income-producing securities.
FINSUM: A nice hybrid between appreciation and income is a good approach for right now, so the latter two seem look good buys. More broadly, value stocks appear a smart choice given the particular moment in markets.
Okay maybe it’s not a “boom” but it is certainly a “boomlet”. Alongside all the uncertainty in markets surrounding the election, value stocks have been having a moment in the sun. The reason why is interesting and seems to be two-part: one aspect is idiosyncratic, the other more macro. On the idiosyncratic front, many bank employees tend to get very conservative with their investments at this time of year because many financial companies end their fiscal year’s before December 31st. What those employees do is sell their winners and buy beaten up value stocks. It happens every year, but the effect might be bigger this year because tech stocks have gained so much. On the macro front, one big thing helping value stocks is that the COVID vaccine has given hope to “normal” economy companies. Those stocks have done very poorly this year, so are squarely in the “value” category.
FINSUM: If a vaccine is widely available soon—and people actually take it—a return to some version of the pre-COVID economy is seems likely. That said, things will have changed and there will be some stocks that continue to struggle. Choose wisely.
Large cap value is a very interesting area at the moment. Over the last few weeks there has been a pickup in breadth, with gainers outpacing losers 2-to-1. Megacap tech stocks are not leading the market like they were early on in the recovery. That means the chances for broad market gains are looking stronger. With that in mind, large cap value looks like an excellent choice. Compared to small and midcaps, large caps are less volatile and more diversified. They do have more international exposure (which could be a positive or a negative), but on the whole they appear as though they have as much or more upside potential with less downside risk.
FINSUM: If you believe in a coming broad-based rally in stocks, then large cap value seems like a good place to be.