In his recent article in the AFR Australia, Rob Arnott explains why we may never again see a better opportunity to buy value stocks. Here’s a excerpt from the article:
We believe the economic pullback and value’s retraction are temporary. Vaccines are demonstrating efficacy in reducing adverse health effects and deaths, even for the delta variant. Pharma is already developing and testing vaccines that target the new variants, which should curb the spread and severity of illness of future variants.
As the pandemic wanes, many of the tech companies that greatly benefitted from the lockdowns and widespread work-from-home policies will likely cede some of those benefits. While some pandemic-era behaviour changes will prove lasting, we believe most people will revert partway to the normal habits of the past.
Amazon, for example, grew its revenues by 84 per cent in 2020 relative to 2019, profiting from the massive switch to online purchasing; some of that behaviour will wane. As this happens, many of the economic and behavioural trends that supported these high-flying companies are likely to reverse course.
All indications are that 10 years from now COVID-19 will be an awful but fading memory, with the virus having morphed into yet another strain of seasonal flu against which most of the world’s populace will have attained some measure of resistance.
Certain cyclical sectors may also have ample room for further recovery.
Specifically, the energy sector has ridden a wave of bankruptcies over the lockdown period. Industry survivors should be able to operate with richer margins, with oil prices likely to reach much higher levels. Given the cheap valuations of some of the major energy companies, these shocks could be great news for value investors.
We may never again see a better opportunity to buy value stocks. When peak fear rules investors’ mood, as is currently the case for value strategies, it’s time to buy, not sell.
You can read the entire article here:
For all the latest news and podcasts, join our free newsletter here.
Don’t forget to check out our FREE Large Cap 1000 – Stock Screener, here at The Acquirer’s Multiple: