The Zacks Analyst Blog Highlights: Apple, JPMorgan Chase, Verizon
Communications, Procter & Gamble and Exxon Mobil
CHICAGO, May 30, 2013
CHICAGO, May 30, 2013 /PRNewswire/ --Zacks.com announces the list of stocks
featured in the Analyst Blog. Every day the Zacks Equity Research analysts
discuss the latest news and events impacting stocks and the financial markets.
Stocks recently featured in the blog include Apple Inc. (Nasdaq:AAPL),
JPMorgan Chase & Co., (NYSE:JPM), Verizon Communications Inc., (NYSE:VZ),
Procter & Gamble Co., (NYSE:PG) and Exxon Mobil Corporation, (NYSE:XOM).
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Here are highlights from Wednesday's Analyst Blog:
Investing Styles: Is It Time to Change?
The Dow and S&P 500 have achieved new highs this year. Given anemic or no
returns on bonds, money market and gold, it is somewhat unlikely that, in the
absence of a major shock, the equity rally will dissipate in the short-term.
Should we then use the pause in the market rally to evaluate our investing
style in order to maximize returns going forward?
The value style looks for companies trading at a discount to their intrinsic
value with good dividend stream and low valuation multiples. Value funds
therefore search for hidden beauties where the stock price is lower than the
inherent worth (i.e., present value of discounted projected cash flows),
thereby providing a margin of safety to the investor. The growth style, on the
other hand, typically involves investing in companies with rapid growth of
earnings, retention of profit and high P/E ratios. While value funds generally
do better in market downturns, growth leads in a rally.
Value and growth investing are not mutually exclusive. Warren Buffett, in
fact, prefers a combination of the two in the sense that his selected
companies are able to grow their upcoming earnings fast enough but are still
available at a discount to their intrinsic value.
In particular, the 'dividend growth' investing style captures the virtues of
both growth and value investing. This methodology involves investing in
companies that are able to grow earnings rapidly enough so as to engage in
frequent dividend hikes but are still available at moderate valuations.
Growth investing boomed in the late 1990s, when investors scooped up new age
stocks with no earnings or cash flows at steep premiums. After the dot.com
bubble burst, value investing dominated till the Great Recession of 2008 set
in. The Lehman crisis heralded another change in investing style with the
growth investing style taking center stage.
Eugene Fama and Ken French showed that large value (average return of 11.9%
per annum) handily beat large growth (9.2% per annum) over the prolonged
period from 1928 to 2004. It has, however, been estimated that value shares
have lagged growth shares by over 20% over the last 16 or so years. Over a
shorter time frame (past 5 years), the Russell 3000 Growth has given an
annualized return of 6.75% compared with just 4.36% for the Russell 3000
Value. Clearly, value investing has a lot of ground to recover vis a vis the
growth style before a value premium re-establishes again.
Should the current accommodative monetary policy driven stock market rally
taper off, then a bottom up stock picking approach, as in value investing, may
look attractive, keeping your investment horizon in mind as always.
To sum up, higher growth rates may not always lead to enhanced investment
returns as markets may be efficient at factoring in growth prospects. That may
help explain why some bourses in faster growing emerging markets have been
flattish this year. According to this school of thought, returns are linked
with risk, not growth.
Most considered Apple Inc. (Nasdaq:AAPL) to be a growth stock, till it fell
far enough to become a value stock. Our perusal of the composition of some
value oriented mutual funds reveals holdings in financial services, eg.,
JPMorgan Chase & Co., (NYSE:JPM); telecom, eg., Verizon Communications Inc.,
(NYSE:VZ); consumer staples, eg., Procter & Gamble Co., (NYSE:PG) and energy,
eg., Exxon Mobil Corporation, (NYSE:XOM).
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