Eq: Value (89)
(New York)
Something interesting has been happening for value stock investors lately—value stocks have been outperforming. Value investing as a discipline has been suffering for at least a decade as growth stocks won out. The malaise has been so poor that many have given up on the philosophy altogether. So with the recent turnaround, should that be reconsidered? Barron’s says the answer is a firm “no”. The recent outperformance of value may just be an aberration related to movements in particular sectors. The reality is that most value indexes have little exposure to the sectors that are suffering, like tech and consumer discretionary. Therefore, their outperformance is more a coincidence than a turn in the market.
FINSUM: We’d have to agree with this view. It does not seem like there has been some fundamental change in investors’ thinking, more that anxiety has just struck the most growth-oriented sectors.
(New York)
If you think the market has been bad overall, take a look at the asset management sector, which has been brutalized in the last few weeks. The S&P index of asset managers has fallen 14% this month, compared with a 9.3% drop for the market overall. That adds to a lot of pain already this year—the index has lost almost 25% of its value in 2018 and is headed for the biggest loss since 2008. Some, like leader BlackRock, have been hit very hard just this month with shares down 17%.
FINSUM: Weak fees and poor fund flows are the immediate problem, but they are a major issue because they support investors’ fears of disruption in the industry.
(New York)
The market is not doing well this month. That is probably a serious understatement, in fact. Yet, that leaves room for opportunity, both in aggregate, but also in specific shares that might lead in these tougher times. Retail is an interesting choice right now, as the economy is still doing well and we are headed into the busy holiday shopping period. With that in mind, take a look at Gap, Foot Locker, and Michael Kors Holdings, all of which look cheap “relative to their respective sectors” and have “identifiable catalysts between now and year-end”, according to analysts at Jefferies.
FINSUM: Retail is interesting to us at present because it is not overly rate sensitive and is heading into its strongest period of the year right when the economy is looking best. That said, we are worried about consumer spending falling on the back of these equity losses.
(New York)
Value investing has been dead for a long time. So long in fact that many of its strongest disciples are even starting to wonder if it will ever return. Well, something interesting has happened this month. The broader market was down 8.9%, but the S&P Value Index only fell 5%, showing that value stocks have actually been outperforming the market during the recent turmoil. BlackRock is sticking to value stocks, with the head of factor-based investment strategy commenting that “We find the economic rationale still holds … We’re comforted by 90 years of long-run data, where value time and time again outperforms growth”. One of the issues for investors is that there is no clear way to define value, as each index uses its own metrics.
FINSUM: Value stocks do seem interesting right now, as this is the kind of environment where they would thrive. But do you determine value based on price to book, P/E ratio, returns, or something else?
(New York)
Value stocks have been hurting for years. They have lagged growth stocks considerably over the last decade, and have been underperforming growth stocks for so long that even some ardent value fans say the shares might never rebound. However, an increasing group of analysts are saying that value is set to stage a big comeback versus growth. Some indicators show that a reversal of growth stocks is imminent, and P/E ratios are running so high that value looks likely to appreciate. Morgan Stanley analyst Michael Wilson thinks that the current rotating bear market will end with growth and small caps sinking.
FINSUM: We don’t see much of a catalyst for growth stocks sinking while value stocks rise. Further, if stocks fall, they could all fall in unison without value seeing any outperformance.