On December 15th, 2023 I was asked to discuss value stocks with Oliver today. He was generous with time and allowed me to really get into what value means. First is the more common idea of value that has to do with the price of the stock compared to its book value, or Price to Book. You know, mostly sectors that are old economy, slow growers like energy, materials, banks, industrials. Most value ETFs are doing this. This is helpful when you want to get broad exposure to cheaper, lower valuation, more established stocks that pay dividends.
Then you have what I consider true value investing, which is looking for a dollar you can buy for 50 cents. You could say today that Google is an example of mega cap growth stock that some may say is a value stock today. What about Apple back in 2013 when it hit the bricks on slow iPhone sales? A true value stock is a great company that has for some reason fallen out of favor with investors but can turn around.
My point is to always ask the question, is this stock or ETF claiming to be a value investment just a slow growing, mature dividend payer (of which the valuation could be quite high), or is this a great company that has fallen on hard times that can be an outperformer in the future? It’s an important distinction.