The mar­ket's biggest bar­gains

Why value is back in fash­ion

Shares - - FRONT PAGE -

Snar­ing a bar­gain can be very sat­is­fy­ing in any as­pect of life and when it comes to the stock mar­ket in­creas­ingly lu­cra­tive too.

There are signs that value is start­ing to come back into fash­ion fol­low­ing sev­eral years when in­vestors were fo­cused on com­pa­nies de­liv­er­ing growth with lit­tle re­gard for val­u­a­tion.

Growth in­vestors look to snaf­fle out stocks where there is po­ten­tial for sig­nif­i­cant ex­pan­sion. A growth stock is usu­ally de­fined as a com­pany whose earn­ings are ex­pected to grow at an above av­er­age rate ei­ther for its in­dus­try or the over­all mar­ket.

A growth in­vestor will buy such a stock even if it ap­pears to be expensive based on met­rics such as the price-to-earn­ings (PE) ra­tio.

Value in­vest­ing is of­ten seen as the re­verse of growth in­vest­ing and places the em­pha­sis on find­ing as­sets which trade on lowly val­u­a­tions, in the hope that the val­u­a­tion will even­tu­ally re­vert back to more nor­mal lev­els.

‘Cheap stocks are now de­liv­er­ing su­pe­rior growth’

VALUE IS PER­FORM­ING WELL AGAIN

Philip Wol­s­ten­croft, fund

man­ager of Artemis Euro­pean Growth (GB0006600844),

com­ments: ‘Over the past 100 years or so, cheap stocks have tended to out­per­form the mar­ket in two years out of three. In the past decade the pro­por­tion has been nearer two out of 10.

‘The rea­sons for this are many fold; es­sen­tially cheap stocks have de­liv­ered poor growth since the fi­nan­cial cri­sis and so have de­liv­ered poor share price per­for­mance. This ap­pears to be changing. Cheap stocks are now de­liv­er­ing su­pe­rior growth.’

Wol­s­ten­croft says nu­mer­ous fund man­agers are loaded up with growth stocks at a time when not only are they expensive, but are de­liv­er­ing poor rel­a­tive growth and so are un­der­per­form­ing.

Matthew Jen­nings, in­vest­ment di­rec­tor at fund provider Fidelity, says in­vestors should not get too hung up on any par­tic­u­lar style of in­vest­ing. ‘We should look be­yond these la­bels, towards rig­or­ous and dif­fer­en­ti­ated fun­da­men­tal re­search and per­for­mance driven more by stock se­lec­tion than by style bias,’ he says.

LOOK BE­YOND THE MET­RICS

We agree with this as­sess­ment and the se­lec­tions over­leaf aren’t solely picked be­cause they look cheap on cer­tain met­rics like price-to-earn­ings and net as­set value per share. They have also been sub­jected to close anal­y­sis by the

Shares team and have clearly iden­ti­fi­able cat­a­lysts which can drive the shares higher.

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