"The prices fluctuate more than values so that it is possible."
If this quotation from the Wall Street doctor Joel Greenblatt is right, the opportunities have flourished in today's market environment. You just need to know where to look.
Here is a newsletter from Alliance Bernstein's James MacGregor, written by Cem Inal and Shri Singhvi, coming in.
"Value investing has always been challenging consensus – but never more than today," MacGregor wrote. "After several tough years, we see signs of value-added brewing. Yet, there is a need for new approaches to capture the potential of today's complex markets." , wait until their value is realized, and voila, profit. Sounds easy, but if the last decade is any indication, it certainly isn't.
Underperformance of securities since the financial crisis has understandably given dirty investors to lose faith in the time-tested approach, which counts as heavily as Warren Buffett
Benjamin Graham and Seth Klarman as loyal followers.
MacGregor points out that the numbers are actually frightening. Russell 1000 Value Index
has withdrawn Russell 1000 growth index
RLG, [2.2459008] -0.24%
by 3.5% annually over the last 10 years.
"Securities are generally considered more risky and have suffered from an increasing fear of trade friction, interest rate security, volatile oil prices and threats to economic growth," MacGregor explains in the note. "However, below the surface we see promising signals."
He used this chart to illustrate how deeply discounted values stocks are for growth. As you can see, the current level is not something we see very often.
"Skeptics can claim that the rebate is justified," wrote MacGregor. "Perhaps value stocks are so much cheaper than growth stocks today, because in a tougher macroeconomic environment, investors believe that growth stocks give some immunity to a slowdown and value creation is vulnerable."
That's not how he understands it. He believes that the macroeconomic risks are already priced, and in addition, many of these attractively valued stocks have strengthened the balance sheet to better cope with a potential recession.
"Investors do not have to settle for low-quality, high-indebted or terminally declining companies to gain access to attractive values," he said.
So where does an investor seek this value play?
MacGregor says airlines and communications are mature to pick at this point. Specifically, he highlighted the Alaska Air Group
CMCSA, + 1.47%
which two stocks worth considering.
Anyway, it won't be easy.
"Although value increase arises, the path to recovery will not be steady. Volatility is likely to continue," he wrote. "Therefore, investors must be selective. Passive value portfolios based on simple valuation measurements do not consider individual companies. To identify undervalued companies that can withstand external pressures, investors need to look closely at balances, cost structures, management teams and, most importantly, cash flows."
MacGregor says Investors who are patient and avoid hearing can reap "extremely attractive" returns when the market changes.
"Reports of the death value investing are greatly exaggerated," he said. "By paying attention to the current risks in the market and using more lenses to measure valuations, we believe investors can be trusted to redistribute to disciplined securities based on traditional contrarian stockpicking."
It's a winter chill in the market Thursday, with Dow
S & P
all move lower.