Growth stocks get all the attention these days, what with talk of a final “melt up” in the market before things finally return to rationality, and “value stocks” have been floundering for years as they’ve failed to capture the attention of investors… so last fall we saw a lot of predictions about the “turn,” the point when value stocks would finally begin to outperform again (as they generally have over much longer time periods), and the beginning of some hints, from the few value stock newsletters still out there, that we might finally be primed to see some “buy it cheap” opportunities.
There is, of course, no hard and fast definition of what “value” or “growth” means — usually folks just refer to things like below average price/earnings or price/book valuation when they use the term “value,” and talk about top-line growth (revenue growth, especially), when they migrate to “growth stocks.” In reality, of course, every stock you might invest in today has some element of growth and some element of value — “value” just means, to me, that you pay attention to the valuation of the stock and the actual fundamentals, and think about what the downside risk might be… “growth” means you take into account the fact that most of us are buying because we hope the company we’re buying will grow, sometimes extraordinarily fast but always at least at a fast enough clip to justify the risk you’re taking by buying shares. A real valuation of a stock always has to incorporate some notion of how much the company has grown, and how much it might grow in the future.
But anyway, value stocks are super unpopular because they haven’t generally been rising by 50% a year like the sexy growth stocks… but at some point they’ll probably return to favor, maybe during the next crash when growth stocks fall by 20% and the value stocks fall by only 2%. So when I saw a teaser pitch about the “number one value stock for 2020,” well, I thought we might want to figure out what it is.
The ad this time is from Hilary Kramer, who’s been peddling her ideas in newsletterworld for quite a while (this pitch is for her entry level newsletter, Value Authority ($77 for the first year)), and has some books and TV appearances to support her “brand” — she’s had a few good picks and a few terrible ones over the years that I’ve covered her teasers… the last two were both in retail and have suffered, At Home (HOME) and Big Lots (BIG), but let’s see what she’s got for us today.
Here’s a little taste of the ad, to get you started:
“Riding the Wave of Unstoppable Earnings Growth, a 14 P/E, and Making Money Hand Over Fist…
“This is One Stock That’s Set to Soar….
“Today I’m going to give you an inside look at my No. 1 Value Stock to buy now… and why it could triple your money or more in the next 12 months.”
And she sort of makes an argument for value stocks in general to surge, though it’s a little light on data…
“For the past 10 years, as the markets rose, hedge funds and institutional investors accepted higher multiples as momentum pushed prices even higher.
“Not for much longer.
“As one analyst at Goldman Sachs puts it, ‘Elevated valuations suggest low long-term returns.’
“This is why value plays like Weight Watchers jumped 389% in 2017 as tech stocks slowed… and why institutional investors and hedge fund managers are now looking at value stocks with low P/E ratios and incredible fundamentals that have yet to have their run.”
Weight Watchers (WW) was certainly a lively story from 2015 to 2018 or so, as they tried to rescue the brand and do a bit of a turnaround, with a massive dose of help from Oprah that did give the stock a serious jolt. I guess it counts as a value stock, it was trading at a PE of about 12 in early 2017 and surged dramatically higher to a PE in the mid-30s as the stock peaked in 2018, thanks to dramatically improved growth expectations — but it also then became a “growth stock” cautionary tale in mid-2018 as the stock foresaw the fact that earnings were about to be cut in half and the share price tried to beat the earnings down to the bottom of the chart. I don’t know whether Kramer recommended WW at the time or not.
Kramer’s “#1 Value Stock for 2018,” by the way, was also covered by yours truly — that was the aforementioned Big Lots (BIG), which definitely didn’t work out but certainly looked better at the time than it does in retrospect — and at the time Kramer was making a similar push for 2018 being the year that “value beats growth”, and also using that same comparison to Weight Watchers in her pitch for BIG.
But if we assume that yes, some stocks that perhaps look a bit “undervalued” might have appeal these days, for those of us who can’t stomach chasing growth stocks… or at least can’t stomach it with all of our portfolio… what’s the idea she’s touting now?
Here’s where she gets into talking about her #1 value stock more specifically:
“My No. 1 Value Stock Could Easily Match Weight Watcher’s 389% Gains and Then Some!
“The reason is simple.