Growth stocks have outperformed their value counterparts for the past nine years, but that doesn’t mean investors should give up on them yet.
Value stocks are outpacing growth stocks year-to-date and look quite appealing when compared with pricey growth names, according to Barron’s magazine
In a profile of the $1.6 billion Artisan Global Value fund, the publication discusses five value stocks with portfolio manager Dan O’Keefe. His fund has returned 10 percent annually in the past five years, beating the MSCI ACWI index’s 5 percent and outperforming 96 percent of world stock fund peers.
“We view investing through the lens of valuation, business quality, and balance sheet strength, not a macroeconomic or thematic lens,” O’Keefe says. “I am worried about certain things. What is going on in monetary policy is total and utter insanity. Negative interest rates are in no way constructive to helping economies.”
O’Keefe discusses the attributes of five top value picks:
- ABB Ltd. (ABB): “There is a lot of change happening in power and electricity grids in the way that power is generated and distributed, and investments are necessary to keep up with the pace of the evolution. It is trading at around 14 times current year earnings, which are cyclically depressed as a result of weakness from industries like oil and gas and mining. They have some long-term strategies in place to increase the margins of the business.”
- Baidu (BIDU): “Baidu is the Google of China. They have an 80 percent market share in search, and the business is growing very rapidly or 30 percent top-line growth. Shares trade at 11-12 times earnings excluding investments. On reported earnings, the stock trades at 20-22 times earnings. They have a net cash balance sheet of $14 dollars per share in cash, so the company is financially strong as well.”
- American Express (AXP): “The payments industry is attractive long term, because people are transacting less and less in cash and checks and transacting more and more in electronic forms of payment. The challenges that American Express has had recently primarily relate to the loss of the Costco co-brand deal.”
- Citigroup (C): Citigroup is “extremely well capitalized and simplified. It shrunk its balance sheet. The valuation is really, really cheap, at seven times earnings. It’s trading at about 70 percent of tangible book value. The story is one of excess capital and capital returns. The core equity Tier 1 — the regulatory capital ratio that everyone focuses on — is 13 percent. That’s very strong.”
- UBS Group (UBS): “They have the best global wealth management and ultra high-net-worth management franchise in the world. It is significantly undervalued. It has a core-equity Tier 1 ratio of 14% and is generating excess capital. The dividend yield is around 4 percent.”
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