By one metric, value stocks have been mired in a bear market for the past two years.
According to Chris Harvey, the head of equity strategy at Wells Fargo, the investing factor is at an inflection point that will profit those who buy into it early.
He identified the value stocks best positioned to benefit from an upswing, which are also rated “overweight” by Wells Fargo.
Chris Harvey started 2019 as the titleholder of Wall Street’s biggest bear.
His year-end target for the S&P 500 was the lowest among his peers at major firms until Cantor Fitzgerald churned out a weaker forecast. But Harvey wasn’t bearish per se: He expected a double-digit rally in the S&P 500, just from the lower starting point it plunged to during the fourth quarter.
If the correction somewhat muddled his stock-market views, his latest call for a separate corner of the market is unmistakably bullish. He’s calling the end of a two-year bear market for the value factor, which screens stocks that are trading at low prices relative to their fundamental value.
If the last two years seemed tough for value as defined by Harvey, consider the majority of the post-recession era, when value investors have largely been walloped by high-growth stocks.
“After two years of underperformance and a healthy sell-off in 4Q18, we think the risk/reward for the Value style is much more attractive,” Harvey said. “The pendulum is swinging back in Value’s favor — we’re expecting a positive run for the investment style over the next 12 months.”
Harvey’s conviction in the value style is driven by what he observes as an inflection point for the factor. Specifically, the median book-to-price ratio of “cheap” and “expensive” stocks rose last year to the highest levels dating since 2011, as the chart below shows. In other words, “expensive” …read more
Source:: Business Insider