A recent article in Forbes encourages value investors not to give up: “In fact,” it says, “this might be a really good time to reexamine your portfolio and add some value investments to it.”
The article asserts that “growth stocks are getting over their skis,” with gains of over 20% year-to-date despite concerns about the coronavirus pandemic. “Paying a big multiple for potential growth is fine,” it adds, “but you have to discount the competitive pressures as well, otherwise you’re overpaying.”
As we emerge from the health and economic crisis and consumer activity increases, GDP will hopefully show signs of expansion, the article notes. It adds, however, that “there’s a long way to go before we’re back to normal” in terms of a return to stability and “consumer focused economic activity” that would make airlines, hotels, energy and ride share businesses attractive again.
As we do approach more normal conditions, however, the article suggests that value-oriented businesses with strong dividends will become much more appealing, citing small caps as an example. “Small growing American companies will do well when rates are low and the American consumer starts to spend again. Don’t wait until the economy starts to boom to start building them into your portfolio. Get positioned now while things are still difficult, and have yourself set up to appreciate the recovery over the course of the next 12 months.”
The article qualifies its comments with a note on tech holdings: “Just because we’re saying to look at value doesn’t mean you need to dump all your tech companies,” it concludes, adding, “Tech and Growth aren’t always the same thing, and there are some names you really shouldn’t sell.” It cites Amazon, Alphabet and Microsoft as examples due to their competitive advantages.
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