The Secret to Great Value Investing in 2021
Contrary to popular belief, you can get into cutting-edge companies and still be considered a value investor. Tracey has three tips to help you think...
Let’s be honest.
Value investing has been out-of-favor for at least 5 years.
Sure, there are these pockets of a couple of months when value stocks shine, such as in 2016 when the banks rallied to new highs, or in early 2021 when energy stocks awoke from their long slumber and were the best performing industry in the S&P 500.
Yet even after value stocks outperform, investors still rotate back into their innovative growth stock favorites.
But what if I told you, you could get the innovative, cutting-edge company and also still be a value investor?
Yes, it’s possible.
There’s a secret to great value investing in 2021.
The value investor has to think outside the box.
Amazon: The Value Stock?
In 2019, Warren Buffett’s Berkshire Hathaway stock portfolio bought shares in online retailer Amazon for the first time.
It created a firestorm of controversy because Amazon wasn’t trading with “classic” value fundamentals. You know the ones, first espoused by Buffett’s mentor and boss, Benjamin Graham, such as low price-to-earnings ratios, PEG ratios or price-to-sales ratios.
The Berkshire faithful were so demoralized that Buffett had to take an extra step, at the Berkshire Annual Meeting, of reassuring shareholders that Amazon was, indeed, a value.
We discovered that Buffett hadn’t selected the stock, but it was one of his two co-managers who bought it.
At the time, Amazon was trading with a forward P/E that was its lowest in a decade, or around 60.
A “classic” value Amazon was not.
A New Era in Value Investing
Berkshire’s purchase of shares of Amazon was the first indication, strangely enough manifesting itself in the portfolio of the world’s most famous value investor, that maybe value investing was moving into a new era.
“Value” was no longer going to be solely about low P/Es and slow sales growth.
Value could be defined in other ways, such as on a historical basis, as Berkshire seems to have done with Amazon, or as against its peers.
If you look at “value” this way, it opens up entirely new avenues of investing.
Bye-bye boring slow growth companies.
This new era is here.
But how do value investors find great stocks using this new strategy?
3 Tips for Finding Great Value Stocks in 2021
1) Throw Away the Old Rules
Stop thinking of “value” only in terms of the P/E ratio.
Many innovative companies have assets that can’t be valued based only on earnings whether it is a powerful brand, intellectual property, upcoming product launches, value of content, or even something like popularity on social media.
I’m not saying value investors should ignore what price they are paying for the earnings of a company, but the P/E or P/S ratio shouldn’t be the starting, and ending point, of your search for good value stocks.
Look beyond the ratios.
Continued . . .
Investor Alert: Quality Stocks on Sale
Zacks has uncovered a few selected value stocks that are available at "discounts" of 25-50% and more. Then we use earnings estimates and Zacks Rank timing to catch the best entry and exit points, sometimes riding investments for months and even years to maximize gain potential.
Recent recommendations have climbed as much as +213.2%... +290.3%... even +392.0%.¹
Look inside the portfolio by Sunday, August 29 and you can be among the first to see a brand new pick that will be added Monday morning. You can also download the 5 Stocks Set to Double special report FREE.
See Zacks' latest value recommendations >>
2) Look for Stocks on Sale
Did your favorite growth stock just warn on a key metric, such as subscribers, number of users, or number of cars sold, based on a temporary setback, and get pummeled by investors?
This may be your chance to get the stock on sale, when other investors are disillusioned or scared.
Remember, value investors look for companies being shunned by Wall Street.
Of course, value investors will know the company well enough to determine if it’s really a short-term setback or not.
But buying when others are fleeing is a great way to find value.
3) Find Value Among Peers
You might be kicking yourself because you missed the great rally in the software stocks, or the semis or the cannabis stocks.
Fill in the blank. There is always a hot industry that is rallying.
These hot industries often seem out of reach to value investors.
But if you take a deeper dive into the industry, you’re likely going to find some value in the group. There are always a few companies that are out of favor among the Street, for whatever reason.
Heck, even among the FAANG stocks, which certainly aren’t “secret” to investors, by any means, Facebook and Alphabet both traded at a discount to their other FAANG competitors over the last few years, with forward P/Es in the low-to-mid 20s.
Is it any surprise, then, that the two undervalued FAANG names have finally busted out and are outperforming?
Where to Find Exciting Gains in Value Investing’s New Era
Value stocks haven’t always been a thrilling way to invest. But in 2021 and beyond, they can deliver some of your portfolio’s biggest gains – and faster than you’d probably expect.
Just ask Warren Buffett!
Investors are seeing tremendous returns in a portfolio I'm managing called Zacks Value Investor. Because we’re targeting “new era” value stocks, which combine elements of value and growth stocks, our holdings have soared as much as +213.2%, +290.3% and even +392.0%.¹ In fact, 7 of our current positions are up triple-digits.
You’re invited to look inside the portfolio and see our latest recommendations – including a brand-new pick I’ll be adding on Monday.
As an added bonus, you can also download 5 Stocks Set to Double free. This Special Report reveals 5 stocks our team of experts predict will double within the next 12 months.
Important: This unique opportunity ends Sunday, August 29.
See Value Investor stocks and Download 5 Stocks Set to Double >>
Tracey Ryniec, as Zacks Value Stock Strategist, directs our Value Investor portfolio.
¹ As of 8/23/21. The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position.
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