Value shares: advantages of securities on the example of companies
The current year has seen changes in the stock market, with the popularity of some assets coming out on top, while others are losing their attractiveness. In this situation, it is difficult for an investor to decide whether to invest in value stocks or growth stocks.
Last year, the pandemic caused the price of growth stocks to increase by almost 40%, which was 3 times higher than value stocks, which increased by about 13%. This raises the logical question of where best to invest. An analyst at Freedom Finance believes the multiples are underestimating the prospects for value stocks. Investors expect them to reach mid-single digits in the near term. At the same time, growth stocks are mostly overvalued on key metrics, which include P/S, P/BV and P/E. Companies that use these securities most often do not pay dividends, they actively invest in the development and scaling of the business, and thus increase their debt.
Value stocks are used by companies in cyclical segments with ups and downs. This includes such sectors as metallurgy, transportation, air transport, and tourism. This type of shares became popular in the second half of the last year when the quarantine restrictions were lifted and the prospects for the economy were outlined.The dynamics in the growth of value securities can be considered on the example of a number of companies. Turtle Beach increased sales of its products – professional headphones – during the pandemic. Due to strong demand, the company’s shares have a value that is 12 times greater than the profit of Turtle Beach for the last year, in addition, the brand is not burdened by debts. Experts predict that in the near future the paper price will be $ 35, the last price on the stock exchange was at 27-28 dollars.
Another example is DR Horton, which is the largest real estate developer in the United States. It sells real estate in 29 states. Over 10 years, the volume of operations here has increased by 18% per year. At the same time, the company’s P/E ratio is only 11.6. The reason for this may be investor concerns about the cyclical nature of the real estate market. However, the housing segment is now showing an upturn, which will continue for several months. DR Horton is trading at $91 per share, with a near-term target of $94 per paper.
The economic stimulus measures helped the stock market survive the pandemic with minimal losses, and a boom in investment activity was seen immediately after the start of the vaccination. According to the analyst, the trends of growth of investment business, which exceeds the development of the market itself, will be observed for about another year.