The market's biggest bargains
Why value is back in fashion
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.