Growth investing has been the dominant style in 2020, as ultralow interest rates have made future cash flows more valuable today. And a deep economic recession has emphasized those companies that can grow their business despite a challenging environment.
Russell 1000 Growth
index has returned more than 32% since the start of the year including dividends, while the
Russell 1000 Value
has lost more than 9%. Value underperformed during the market’s tumble in February and March, and has continued to lag behind on the way back up.
The wide divergence, concentration of megacap tech firms such as
(MSFT), and rich valuations for many growth stocks have some on Wall Street pounding the table for a rebound in value stocks. Others note that the factors that have boosted growth in 2020 remain solidly in place, and will continue to handicap value stocks. Time will tell which camp is correct.
For investors looking for attractive bets on a value rebound, the hunt is on for stocks that have been discounted more than their earnings are expected to fall. It is the classic value stock—one that might not have market-leading growth but can be acquired for a relatively cheap price. Lender
(SYF) or packaging maker Sealed Air (SEE) both screen well for value criteria.
Other stocks are cheap for a reason, and could be value traps. They are in declining industries or facing long-term problems that were in place before the onset of Covid-19. Barron’s screened for stocks in the
that are cheap relative to the index—with a forward price-to-earnings ratio below 15—but whose earnings per share have fallen annually over the past five years and are expected to face annual declines over the coming five years, per Wall Street analyst consensus.
It should produce a rough starting point for identifying companies that were in a challenged position going into the crisis, and that aren’t expected to come out of it much stronger. The screen yielded 13 stocks.
Companies that could be value traps include several consumer-products firms:
(TPR). Asset managers
(IVZ) also come out of the screen. Tech names include
(PSX) round out the list.
(If you cannot view the table above, please click here.)
Write to Nicholas Jasinski at [email protected]