With the growth stocks’ momentum coming off the boil in the wake of FY19 results – given that investors are being asked to keep paying eye-watering earnings multiples for growth heavyweights, such as Afterpay Touch (122 times expected FY21 earnings) and WiseTech (92 times expected FY21 earnings) – the search is on for “value” stocks.
While this is fraught with danger in times of low economic growth, and particularly when earnings downgrades are common, investors are sifting the market for value. The problem, always, with trying to find out-of-favour “value” stocks is that they are trading on apparently alluring valuations for very good reasons – in other words, they are “value traps,” on either price/earnings (P/E) multiple or dividend-yield grounds.
Still, brokers report an increased willingness to pull money out of the momentum stocks — those that have had the best returns over the past year — and into stocks seen as exhibiting value. This is a stock-by-stock approach, that is being conducted in an environment where overall share market return expectations are turning negative.