Displaying items by tag: valuation

(New York)

If that headline seems like a head scratcher, it is meant to be. Barron’s ran a curious article today which argues that weak forecasts for earnings might actually be a good catalyst for higher stock prices. That seems to defy logic, but would be a continuation of a trend that has been in place for a few years. When companies broadcast weak earnings to come, it tends to make investors nervous, leading to oversold conditions. As you might expect, oversold markets tend to lead to bull runs.

FINSUM: This is a tenuous relationship, but when that has been apparent for the last few years. Stocks do like to climb a wall of worry, and this would be a good wall.

(New York)

Looking for the best big tech stock to buy? Look no further than Google. Alphabet, the parent company of Google, is a better deal than it seems on paper right now. Yes, it is trading for 24x forward earnings, a 50% premium to the S&P, but it has some very strong redeeming qualities. Get this—revenue growth at Google has raged from 21% to 25% per quarter for the last 14 quarters. Further, the important thing about that valuation metric above is that it does not include Google’s massive $105 bn in cash. If you strip that out, along with the loss from its “moonshots” division, and Alphabet is trading at 19x earnings—not bad for a company with that kind of growth! The stock has been beat up lately because of significantly higher spending, which has hurt margins.

FINSUM: Okay, so margins are down a bit, but the c-suite says they are investing for the future. We think this may present a good buying opportunity. We never thought we’d be talking about a FAANG as a value stock!

(New York)

A terrible December and then a great January. There is certainly reason for optimism on shares, but investors may well be nervous after a such a dramatic swing. February is not traditionally a very strong month for stocks, but this year could be different. That is for two reasons. The first is that February tends to mimic January, and secondly, because the Fed has just made a historic u-turn on rates, which should provide much smoother sailing.

FINSUM: The other big factor here is that p/e ratios have fallen dramatically over the last year because of the big move lower in stocks and the healthy gains in corporate profits. We are increasingly optimistic.

(New York)

It has been a long time since value stocks have performed well. For about a decade, growth stocks have handily outperformed growth. However, the stage may be set for a long awaited rebound in value shares. One thing that may help is that shares fell so much to end the year, which has put many even strong companies in significantly discounted positions. The sign that may show it is time for value to shine is that the valuation gap between the market’s most expensive and cheapest stocks has reached its highest since 2008. This is a good indicator that value stocks are likely to rise.

FINSUM: Many analysts have been calling for a resurgence of value stocks for years and it has not happened. That skepticism aside, we do feel more positive about the possibility this time around.

(San Francisco)

There has been a lot of momentum flowing against tech stocks right now, and especially the FAANGs. Facebook has taken a great deal of the pain, with numerous headwinds facing shares. However, the reality is that the company has a very solid underlying business, and the recent volatility means it also has an attractive valuation. According to Deutsche Bank, “We continue to view Facebook as the best risk/reward in large cap internet given the potential for core Facebook engagement to stabilize … and given the extremely attractive current valuation”.

FINSUM: Facebook has been going through a very rough period over the last year, but the negative news cycle is going to abate, and when it does, the stock seems likely to gain.