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Stock Ideas Investors Daily Edge Value Investing Trends. Ideas. Secrets
Stock Ideas Investors Daily Edge Value Investing Trends. Ideas. Secrets 
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| Value Investing Trends. Ideas. Secrets |
| Thursday, 05 June 2008 | ||||||||
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It’s a well-known fact that value investing, widely admired and honored, is the very model of the path to buying low and selling high. The irony is that it’s easier for people to follow the path when it doesn’t matter. In a bull market, value stocks may be slightly overlooked names, but if you go astray into popular ideas, what the heck. Everything’s going up. In a bear market, though, value stocks are downright scary ideas. They’re hard to love. It’s not my term, but many value experts call them the unloved, the hated, the despised. Compared to other stocks, they’re cheap in terms of price compared to their earnings, sales, cash flow or assets per share. This year, value investing is working exceptionally well. I know it for a fact. But what are investors looking for? Trends. Ideas. Secrets. They want to know what to buy if interest rates change, if we have a recession, if oil prices drop… And you can hardly blame them. It’s the scary factor. Value’s not for cowards. More than that, it’s not particularly intuitive, even if you’re brave enough to buy the unloved. Would you have bought value stocks like a foreign airline, an employment agency, a company heavily invested in real estate this spring? They were values, and they’ve all gone up. The reason I can tell you so emphatically that value is working exceptionally well is not because of some glib deduction that dividend-paying stocks are beating growth stocks, or that low P/E stocks are edging out high-P/E stocks. It’s not even because the S&P value index is beating the S&P growth index, which is a travesty as far as I am concerned. I can say how value is performing because I seek it out the hard way. Each year I take a survey of about 150 industry groups to find out which ones are storehouses of value stocks. And this year, value is mopping up the place. With the transition to Investor’s Daily Edge, I was a little slow and began my research in December and wrote my annual sector outlook in late February. In the March Rising Tide issue, I highlighted what I thought were the seven most undervalued industries and what I felt were the best stocks in each of them. I added them and a few more to the Rising Tides Market Outlook 2008-2009 report in early March. Now it’s three months later, and 26 of the 32 stocks I highlighted as best stocks in the worst industries are winners. The six losers are down only modestly.
For comparison, only one in three stocks in the whole market are up even a hundredth of a percent this year. These results are unusually fast. I expect good things to come from my annual “Rising Tides” report because it spots value in a way you can’t find with simple search. It’s based on historic P/E ranges and “drifts” for industry leaders over the past decade or longer. It’s a ton of number crunching enhanced with judgment, and it takes me weeks to do it each year. Normally, some of the undervalued sector selections may begin to move up quickly, but often value takes its time. Usually, I expect the deeply undervalued industries to get righteous in 12-18 months. Having so many undervalued stocks go up so consistently in three months, in a bear market, is something worth noting. It tells me two things, and I hope you are paying attention because it affects your potential results as an investor: Most important, value stocks tend to lead the way out of bear markets, and that is happening now. With an election looming, I’m not sure we’ll see a bull market recovery this summer, but the odds for one in late fall are very, very high. Second, that means your best shopping days are in danger of running out. Yeah, I know, “buy when others are fearful” is standard advice. But I can give you a better reason than that. Respectfully, Lynn Carpenter P.S. To let me know what you thought of today's article, send an e-mail to: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
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