Displaying items by tag: large cap value
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.
One of the questions swirling in the back (or front!) of investors’ minds is whether big tech megacaps are overvalued. They have had a stellar run this year and are trading at rich multiples, which has led to fears of overvaluation. On the other hand, they still seem like they might be the best growth play in the market. At the end of September one could argue things had gotten out of hand. FAAMG stocks were trading at 35x earnings while the rest of the S&P 500 was at 12x, the widest gap since 2000. However, since then fortunes have reversed, with the spread now only 31x to 20x.
FINSUM: So the big question is whether the shrinking of the spread means there is margin for FAAMG growth, or it is a part of a larger trend towards valuation parity? We think it depends on the regulatory path that new administration takes.
There are rising fears about the potential over-valuation of big tech megacaps. While they have risen very strongly this year, their P/E ratios are not the only worry. Regulations are also weighing on investors’ minds, especially after the announcement of the anti-trust probe by the DOJ into Google. That has not stopped the stocks from rallying, however. Most investors are betting that the government’s numerous overtures about anti-trust moves (which have come from both sides of the aisle) are merely saber-rattling.
FINSUM: As it concerns large cap value versus big tech stocks, the answer is simple—it seems like time to buy both. Big tech may keep rising, but there is enough fear to keep other large cap stocks rising as we enter a prolonged recovery, as they have been for several weeks.
One of the most worrying characteristics of the extremely sharp recovery the market experienced over the summer was the heavy bias towards the highest end of large caps-mega caps. Facebook, Apple, Amazon, Microsoft, and Google led the way while many other stocks continued to fall, or rose much less strongly. However, in the last few weeks that has started to shift, with a resurgence of breadth in the market. Gainers have outpaced losers 2-to-1 over the last two weeks, as investors have started to believe in a strong economic recovery. That means previously underperforming large caps are starting to join small caps in rallying into the growing economic recovery.
FINSUM: This is the perfect time for large cap value. The economic recovery is underway and there are plenty of god value large caps that have room to rise because of unreasonable discounting from COVID.