Value stocks are trading at their steepest discounts to the market in history. Chris Matthews reports for MarketWatch:
That’s according to an analysis by J.P. Morgan’s chief U.S. equity strategist, Dubravko Lakos-Bujas, who wrote in a Thursday note to clients that “value is currently trading at the biggest discount ever, and offers the largest premium over the last 30 years.”
Value investing is a strategy whereby investors look for stocks that are underpriced relative to a fundamental analysis of the companies worth, and one that was made famous by Berkshire Hathaway chief executive Warren Buffett.
While value investing helped make Buffett the third richest man in the world, it’s been a losing strategy since the financial crisis, when stock markets have been driven more by macroeconomic events than company fundamentals, and dominated by fast-growing, technologically innovative companies like Netflix Inc.NFLX, -0.28% and Amazon.com Inc. AMZN, +1.00% with sky-high valuations that value investors typically avoid.
After a decade when such growth stocks have outperformed their cheaper rivals, the median forward price-to-earnings ratio of the cheapest portfolio of S&P 500SPX, +0.52% stocks is now trading at 7 times less than the broader to the S&P 500. “Similarly the relative price-to-book spread of the cheapest vs. the most expensive portfolio is at 9 times,” Lakos-Bujas wrote. A price-to-book ratio is a comparison of a company’s market capitalization to its net assets.
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