While high-momentum, high price-earnings (P/E) ratio “growth” stocks such as Afterpay Touch, A2 Milk and ProMedicus have been all the rage in the last few years, in a market under pressure the pendulum is swinging back to the low-P/E “value” stocks.
Value investors are seeing more opportunities than they have done for some time, with more companies trading at low valuations compared to the quality of the business and the companies’ opportunities for revenue and earnings growth.
As always, the prime caveat for the value-oriented investor is that some value stocks are clearly cheap for a reason, whether it be industry concerns, intense competition, management issues or disruption to an out-of-date business model. There is also the risk that a further leg to the market downturn can make a value stock even more compelling value numerically. But in value investing, you have to accept that you will not be able to pick the absolute bottom – nice as that would be.