Are We at the Dawn of a Return of the Value Equities?

"Value” investors above all seek companies judged to be undervalued by the market whose stock prices do not reflect their intrinsic value1 i.e. their real value. The reasons for such undervaluation can be multiple: controversy, disappointing results, reorganisation, difficult environment, low growth… Investors then enjoy the opportunity of investing at a “good price” in the companies they judge to be of high quality yet which are being brushed aside by the market in the short term. Driving forces such as change of management, reorganisation, new strategic plan and new shareholders may ultimately lead to a higher stock price.

Today, the valuation difference between Growth Equities and Value Equities is at a historically high level. It is close to the peak during the dot-com bubble of 2000, offering significan catch-up potential.

DNCA's experts, pioneers in value management, explain why we can expect a paradigm shift in the equity markets, more favourable to this type of stock.

Key Points

  • Since the financial crisis of 2008, the climate of uncertainty dragging down the global economy, successive crises in the eurozone, low interest rates and relatively lacklustre economic growth have favoured so-called « growth » companies that are the principal beneficiaries of falling interest rates.
  • The growth cycle that has persisted over the past 12 years has also been interrupted by three rebounds in Value Equities, driven by an improved economic outlook.
  • While it is difficult to declare the emergence of a new value trend in the short term, a certain number of indicators militate in favour of a rebound in the medium term.

Resources

1 Present value of future cash flows.

This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed are as of November 2019 and may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted, and actual results may vary.

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