A value stock is defined as a stock whose price seems low relative to the company’s financial performance. These days, a good example is Johnson & Johnson (JNJ).
JNJ was up 11% last year. By comparison, Apple (AAPL) was up more than 80% and the average stock was up 18%.
JNJ has what analysts like to call great fundamentals. That is to say, those tedious finance and accounting metrics such as P/E, P/Sales, ROE, etc. earn high marks. And yet last year JNJ neatly under-performed the benchmark.
Classic value stock - it looks great on paper but just doesn't get the price appreciation.
Lately there’s been a lot of talk that value is where it’s at - and growth stocks are overrated. Growth stocks are basically the opposite of value – they have high relative price appreciation but aren’t so great on the fundamentals.
Growth stocks' price appreciation is based on the idea the company will grow into its price and improve those fundamentals in the future, when they…. grow.
So far in 2021, value-oriented Exchange Traded Funds (ETFs) are seeing big inflows even as tech ETFs – classic growth stocks – are seeing corresponding outflows.
Here at Quish, we think “value” and “value versus growth” aren’t really a meaningful way to categorize stocks.
In thinking about what to buy, we’d rather look at sectors and individual companies.
For example, with interest rates so low, we’re not (yet) huge fans of most financials – a value mainstay. It’s not really rocket science that banks are probably going to have a harder time making money in an ultra-low-rate environment. And will start to do well as soon as it looks like rates are increasing.
Maybe there’s a good reason some sectors are under-performing even though they may score high on the quality metrics.
We’re fans of JNJ, but not because it’s a value stock. (It's more complicated than that.) And, let’s face it, we still like a little bite o' AAPL - classic growth - too.
