In his latest Insight, David Herro sees a stark divide between undervalued value stocks (especially international) and inflated growth stocks, primarily due to factors like the Big Seven in the US. He believes this imbalance is unsustainable and predicts strong returns for value plays, particularly in international markets. These markets are seen as attractive due to:
- Low valuations: Despite good earnings and financials, international value stocks have been compressed for a decade
- Currency devaluation: Weakened foreign currencies offer an additional discount on top of lower stock prices
Together, these factors create a “double discount” opportunity for international value investing.
Here’s an excerpt from the Insight:
Herro: I think the biggest catalyst that we see today is the dichotomy and prices that we’re finding between value stocks, international value stocks, and what I would say are growth stocks.
You know that in the United States for instance the Big Seven has caused this huge valuation disparity.
Frankly I believe this is unsustainable, and I think the returns going forward in the value space, especially in the international value space, because of this huge dispersion in valuations, will be meaningful.
International equities are poised to rebound because it’s simply one of the lowest priced areas left in the world today.
Even though they continue to have good earnings growth and strong balance sheets we’ve seen large value compression over the last decade in fact.
And when you combine this with the fact that the foreign currencies is devalued, means that today we can buy foreign companies at big discounts, as well as acquiring their underlying currencies at the same discounts.
Therefore, when you look at the package you’re getting by international investing, low company prices and low currency prices, we’re able to take advantage of a double discount.
You can listen to the entire Insight here:
David Herro: Going Where the Value Is Greater: International Equities
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