Fund/ETF for undervalued stock

AnotherJoe

Shocking_Blue said:

AnotherJoe said:

Shocking_Blue said:

MaxiRobriguez said:

Passive "value" investing is going to see you invested in utter dogs who are cheap for a reason.

If you want to get into the value game, either find an active fund or do it yourself. But be warned, value investing has significantly underperformed growth investing for a number of years now and despite repeated "it will turn around soon" for the last half decade, COVID impact has increased the disparity between the two styles rather than brought them closer together.

Personally I like to find blends of the two. Buy a growth company when it's been knocked back a bit (f.e Boohoo) or buy a value stock when growth prospects look intriguing (f.e Prudential). The only proper value stock I hold at the moment is MnG.

Thanks.
I'm certainly not going to jump in and would only ever dabble, but I am keeping an eye on a handful of stocks that have crashed this year, trying to decide when they've bottomed out. Know this is probably incredibly naive, but I'm not going to throw £ at something until I feel it's a calculated decision.

IMHO it is (depending why they crashed*)

For many, the bottom will be much lower than now and for some zero.

There's an inherent assumption in your statement (about bottoming out, eg "when" they bottom out) that such shares will then rise up again, perhaps to where they were. But maybe they are a falling knife destined to stick themselves in the floor and you'll get cut trying to catch them.

* TBF I made a fair bit of money immediately after the Brexit vote doing what you are planning, by buying housebuilders that had taken a big hit, on the grounds the market had overreacted and that British people would still like to live in houses, Brexit or no Brexit. However many of the current falls are fundamental,  based on changes of business that are structural. I dont see airlines recovering any time soon for example not restaurants groups, nor oil companies, nor property businesses that manage malls and the like.

But Another Joe, they (stocks I'm referring to) will bottom out, and will rise, won't they? I know what you're saying about fundamentals and structure, but the cos will surely respond to this. I also believe however that they are still going to fall as covid continues, so I wouldn't jump in anytime soon.

Maybe but perhaps the bottom is a long way from where they are now and how long will it be until they rise if they do ?

MaxiR came up with a good analysis as to why to avoid the list you posted.

Anyway, even if they will rise, there are any better places to invest your money. What makes you think that (say) BT will bottom out and recover and make you more money than buying a company thats actually growing. There's no law that companies share price will revert back to where it was once.  Why buy these, just because someone (you? who?) has arbitrarily labelled it as a "value stock" whatever that means and for some unprovable reason thinks that label means its a good deal ?

Stop bottom fishing, pick companies that will grow because their share price will too. I suggested one. Plenty of others. No need to fill your portfolio with dogs.

AnotherJoe

Shocking_Blue said:

MaxiRobriguez said:

Shocking_Blue said:

AnotherJoe said:

Shocking_Blue said:

MaxiRobriguez said:

Passive "value" investing is going to see you invested in utter dogs who are cheap for a reason.

If you want to get into the value game, either find an active fund or do it yourself. But be warned, value investing has significantly underperformed growth investing for a number of years now and despite repeated "it will turn around soon" for the last half decade, COVID impact has increased the disparity between the two styles rather than brought them closer together.

Personally I like to find blends of the two. Buy a growth company when it's been knocked back a bit (f.e Boohoo) or buy a value stock when growth prospects look intriguing (f.e Prudential). The only proper value stock I hold at the moment is MnG.

Thanks.
I'm certainly not going to jump in and would only ever dabble, but I am keeping an eye on a handful of stocks that have crashed this year, trying to decide when they've bottomed out. Know this is probably incredibly naive, but I'm not going to throw £ at something until I feel it's a calculated decision.

IMHO it is (depending why they crashed*)

For many, the bottom will be much lower than now and for some zero.

There's an inherent assumption in your statement (about bottoming out, eg "when" they bottom out) that such shares will then rise up again, perhaps to where they were. But maybe they are a falling knife destined to stick themselves in the floor and you'll get cut trying to catch them.

* TBF I made a fair bit of money immediately after the Brexit vote doing what you are planning, by buying housebuilders that had taken a big hit, on the grounds the market had overreacted and that British people would still like to live in houses, Brexit or no Brexit. However many of the current falls are fundamental,  based on changes of business that are structural. I dont see airlines recovering any time soon for example not restaurants groups, nor oil companies, nor property businesses that manage malls and the like.

But Another Joe, they (stocks I'm referring to) will bottom out, and will rise, won't they? 

Not necessarily. 

Companies particularly hard hit could go to the wall and your stocks become worthless. Companies like Cineworld might be in this boat for example if there is no return of customers for months or years.

You may find companies that don't go to the wall suffer from technological/societal changes which means their business model is no longer as safe as it used to be. They may struggle to grow revenues or cut costs whereas more nimble competitors find it easier and start to take market share. In that case, the stock price after crashing may just stay flat for a bit - and whilst you don't lose money, you lose the opportunity gains that you could have realised if you invested in these other companies.

I think the thing people are trying to say is that it's quite difficult to pick out a truly undervalued company. Even those that offer a wide margin of safety doesn't mean you will be almost guaranteed to make gains, it just lowers chances of further losses.

HSBC is in your 10 value stock lists, but it's currently cheaper than it was in the depths of 2009, and any investor who bought HSBC shares between September 2003 and 2008 has never once had even the chance to sell at a gain since.

Fair enough (Cineworld might be one to avoid in any case). I guess the situation isn't helped by sites like Morning Star and Motley Fool (respected sources of info for Joe Public) pitching the likes of BP as potential value buys. Just hard to believe that a co the size of BP would be out footed (no matter how nimble they are) by smaller cos. Will have a re-think, though, in light of the prevailing sentiment in the replies to my post.

You have to understand how large companies operate. They have inertia, rewards for bad behaviour , stick to what they know, find it hard to pivot because it damages their base. Despite what you'll see for example about BP investing in renewables, which they are, as a fraction of their R&D budget and turnover its utterly insignificant and outweighed by their massive stranded assets.

Thrugelmir

Moe_The_Bartender said:

MaxiRobriguez said:

Passive "value" investing is going to see you invested in utter dogs who are cheap for a reason.

Value is an outdated concept which worked before the internet became ubiquitous. 

Value investing will never cease to be a concept. The art is to spend time and effort finding great businesses that are unloved by the market.  Then having the patience to quietly accumulate a sizable position while waiting for the market to rerate the stock. 80% of daily stock market trading is now confined to just 110 major stocks globally. That's out of some 40,000 listed companies. A big pond to go fishing in. 

Thrugelmir

Shocking_Blue said:

MaxiRobriguez said:

Shocking_Blue said:

MaxiRobriguez said:

Shocking_Blue said:

MaxiRobriguez said:

Passive "value" investing is going to see you invested in utter dogs who are cheap for a reason.

If you want to get into the value game, either find an active fund or do it yourself. But be warned, value investing has significantly underperformed growth investing for a number of years now and despite repeated "it will turn around soon" for the last half decade, COVID impact has increased the disparity between the two styles rather than brought them closer together.

Personally I like to find blends of the two. Buy a growth company when it's been knocked back a bit (f.e Boohoo) or buy a value stock when growth prospects look intriguing (f.e Prudential). The only proper value stock I hold at the moment is MnG.

Thanks.
I'm certainly not going to jump in and would only ever dabble, but I am keeping an eye on a handful of stocks that have crashed this year, trying to decide when they've bottomed out. Know this is probably incredibly naive, but I'm not going to throw £ at something until I feel it's a calculated decision.

The trick is to work out why they have crashed and whether that level of sell off is justified. Not all value/crashed stocks are a bargain - some sell-offs are occurring because the business is either impacted by certain events or it's just had a torrid time of late for their own reasons, which ends up making the stock by typical measurement expensive.

It's not easy to identify good value stocks, and requires patience and resolve in your decision making. It's been far easier and more profitable in recent years just buying mega cap/tech, who knows when that will change. 

Thanks.
This is the sort of info that I'm generally pointing to:
https://www.morningstar.co.uk/uk/news/204527/10-undervalued-uk-stocks.aspx

BAT/Imperial: Relies on non-developed markets continuing to smoke in large numbers. Not guaranteed. Forex risk. Large play in vaping, but if vaping ends up the same way as smoking scientifically speaking at least, then market is limited.
HSBC/Lloyds: Not paying dividends currently. Could be global negative interest rates imminently which would weigh on profitability. COVID not done with yet, businesses getting less support from governments may go to the wall in greater numbers causing more bad debts for banks.
BP/RDS - Much sunken cost in fossil fuel investment. More nimble energy companies utilising new-tech renewables could disrupt. 
BT - Needs to overhaul their infrastructure across the country and is saddled with debt/pension requirements.

Don't know enough about advertising/defence industries to pass comment on WPP and Meggitt. 

Out of that list I already own BT but I'm not massively fond on it and have considered swallowing the losses already incurred since I bought it. HSBC is on my watchlist but a long way from actual purchase yet. 

Besides practically all of these are high up the FTSE100, so you'd probably find it cheaper to just buy a FTSE100 tracker and you'd get similar returns. 

Did think BP was a serious potential value buy, though, along with Lloyds (Cineworld?).

Cineworld?  Debt burdened. The inherent danger of overleveraging. 

Moe_The_Bartender

Thrugelmir said:

Moe_The_Bartender said:

MaxiRobriguez said:

Passive "value" investing is going to see you invested in utter dogs who are cheap for a reason.

Value is an outdated concept which worked before the internet became ubiquitous. 

Value investing will never cease to be a concept. The art is to spend time and effort finding great businesses that are unloved by the market.  Then having the patience to quietly accumulate a sizable position while waiting for the market to rerate the stock. 80% of daily stock market trading is now confined to just 110 major stocks globally. That's out of some 40,000 listed companies. A big pond to go fishing in. 

I don’t have the time but the fund managers who do don’t appear to have the ability to find these businesses either.

Another_Saver

The internet has made value investing outdated... That idea is outdated, people were saying it back the 90s and value and EM did far better than both the hot tech stocks and the general market over the 2000s. It sounds like the Wall Street Journal suggesting investors rethink the quaint idea of profits, or the classic "this time it's different" idea.
Chasing growth does not higher returns generate - sources abound. The little book of common sense investing, the credit Suisse global Returns yearbook and numerous other sources by the authors, slow finance by Gervais Williams, there's Arnott and Bernstein's argument that hot new tech companies often underperform because of high capital costs, and numerous journal articles about higher dividend payers tending to have higher future earnings growth, contrary to conventional wisdom.
"... Maybe, just maybe, investors will one day learn their lesson and stop rising to the bait of growth" (authors of the credit Suisse yearbook)
The growth premium, as defined by the ratio of growth pb to value pb is 5, higher than its peak of ~4.5 in most markets in 2000 (iShares and vanguard global momentum funds PBs are ~4.5, value funds PBs are ~0.9).
As for yield, VHYL's PB is about 2/3 that of the general global market and the dividend yield is some 2% higher.

Prism

Another_Saver said:

The internet has made value investing outdated... That idea is outdated, people were saying it back the 90s and value and EM did far better than both the hot tech stocks and the general market over the 2000s. It sounds like the Wall Street Journal suggesting investors rethink the quaint idea of profits, or the classic "this time it's different" idea.
Chasing growth does not higher returns generate - sources abound. The little book of common sense investing, the credit Suisse global Returns yearbook and numerous other sources by the authors, slow finance by Gervais Williams, there's Arnott and Bernstein's argument that hot new tech companies often underperform because of high capital costs, and numerous journal articles about higher dividend payers tending to have higher future earnings growth, contrary to conventional wisdom.
"... Maybe, just maybe, investors will one day learn their lesson and stop rising to the bait of growth" (authors of the credit Suisse yearbook)
The growth premium, as defined by the ratio of growth pb to value pb is 5, higher than its peak of ~4.5 in most markets in 2000 (iShares and vanguard global momentum funds PBs are ~4.5, value funds PBs are ~0.9).
As for yield, VHYL's PB is about 2/3 that of the general global market and the dividend yield is some 2% higher.

Price/book ratio is barely relevant for growth companies and price/earnings isn't much help either. To value a growth company you need to estimate its long term growth prospects within its sector. To make money from you either have to do that better than everyone else or just ignore the problem and follow the crowd with an index fund and see what happens. 

The ideal scenario would be to find small unresearched growth companies that are also undervalued. That is what the internet and big data has made harder to do.

AnotherJoe

Another_Saver said:

The internet has made value investing outdated... That idea is outdated, people were saying it back the 90s and value and EM did far better than both the hot tech stocks and the general market over the 2000s. It sounds like the Wall Street Journal suggesting investors rethink the quaint idea of profits, or the classic "this time it's different" idea.
Chasing growth does not higher returns generate - sources abound. The little book of common sense investing, the credit Suisse global Returns yearbook and numerous other sources by the authors, slow finance by Gervais Williams, there's Arnott and Bernstein's argument that hot new tech companies often underperform because of high capital costs, and numerous journal articles about higher dividend payers tending to have higher future earnings growth, contrary to conventional wisdom.
"... Maybe, just maybe, investors will one day learn their lesson and stop rising to the bait of growth" (authors of the credit Suisse yearbook)
The growth premium, as defined by the ratio of growth pb to value pb is 5, higher than its peak of ~4.5 in most markets in 2000 (iShares and vanguard global momentum funds PBs are ~4.5, value funds PBs are ~0.9).
As for yield, VHYL's PB is about 2/3 that of the general global market and the dividend yield is some 2% higher.

So is that why all the value ETFs and OIECs are doing so well ? /s

And Credit Suisse I note have given a price target for Tesla of lower than its current share price but to hold ???

And previous, after Tesla rose from 700 (their target) to 1700 they then raised their target to 1400.

With analysis genius like that I'll give the rest of their recommendations a pass.

 

Another_Saver

Prism said:

Another_Saver said:

The internet has made value investing outdated... That idea is outdated, people were saying it back the 90s and value and EM did far better than both the hot tech stocks and the general market over the 2000s. It sounds like the Wall Street Journal suggesting investors rethink the quaint idea of profits, or the classic "this time it's different" idea.
Chasing growth does not higher returns generate - sources abound. The little book of common sense investing, the credit Suisse global Returns yearbook and numerous other sources by the authors, slow finance by Gervais Williams, there's Arnott and Bernstein's argument that hot new tech companies often underperform because of high capital costs, and numerous journal articles about higher dividend payers tending to have higher future earnings growth, contrary to conventional wisdom.
"... Maybe, just maybe, investors will one day learn their lesson and stop rising to the bait of growth" (authors of the credit Suisse yearbook)
The growth premium, as defined by the ratio of growth pb to value pb is 5, higher than its peak of ~4.5 in most markets in 2000 (iShares and vanguard global momentum funds PBs are ~4.5, value funds PBs are ~0.9).
As for yield, VHYL's PB is about 2/3 that of the general global market and the dividend yield is some 2% higher.

Price/book ratio is barely relevant for growth companies and price/earnings isn't much help either. To value a growth company you need to estimate its long term growth prospects within its sector. To make money from you either have to do that better than everyone else or just ignore the problem and follow the crowd with an index fund and see what happens. 

The ideal scenario would be to find small unresearched growth companies that are also undervalued. That is what the internet and big data has made harder to do.

"Valuations aren't relevant" at the individual company level sometimes valuations can be less relevant, on aggregate, no.
Followed by conflating brokers with researchers, and suggesting a period of value underperformance is indicative of a new norm - which has never happened - and mentioning a single stock example to contradict peer reviewed research that goes back over a century (I have plenty more sources).
But thanks for helping to keep value so cheap for me to buy 😘

AnotherJoe said:

Another_Saver said:

The internet has made value investing outdated... That idea is outdated, people were saying it back the 90s and value and EM did far better than both the hot tech stocks and the general market over the 2000s. It sounds like the Wall Street Journal suggesting investors rethink the quaint idea of profits, or the classic "this time it's different" idea.
Chasing growth does not higher returns generate - sources abound. The little book of common sense investing, the credit Suisse global Returns yearbook and numerous other sources by the authors, slow finance by Gervais Williams, there's Arnott and Bernstein's argument that hot new tech companies often underperform because of high capital costs, and numerous journal articles about higher dividend payers tending to have higher future earnings growth, contrary to conventional wisdom.
"... Maybe, just maybe, investors will one day learn their lesson and stop rising to the bait of growth" (authors of the credit Suisse yearbook)
The growth premium, as defined by the ratio of growth pb to value pb is 5, higher than its peak of ~4.5 in most markets in 2000 (iShares and vanguard global momentum funds PBs are ~4.5, value funds PBs are ~0.9).
As for yield, VHYL's PB is about 2/3 that of the general global market and the dividend yield is some 2% higher.

So is that why all the value ETFs and OIECs are doing so well ? /s

And Credit Suisse I note have given a price target for Tesla of lower than its current share price but to hold ???

And previous, after Tesla rose from 700 (their target) to 1700 they then raised their target to 1400.

With analysis genius like that I'll give the rest of their recommendations a pass.

Shocking_Blue

Thanks for the above comment/insight.
I guess part of the novices/newbies naivety is thinking investing is all about Wall Street and Warren Buffet, when actually it is/should be more gradual rather than greedy. That makes sense. Will look at SMT for a possible smallish invest, but I think the above comments have highlighted the downsides - for regular investors - of trying to identify value stock.