In my last article about super sales and high-quality stocks which you can read here in case you missed it, I hinted at the fact that value stocks continue to beat growth stocks hands down, and their winning streak is now into the ninth month.
To explore the topic further, I have brought you a list compiled by financial analyst Mark Hulbert, of the 30 top-performing newsletters’ favourite value stocks right now.
Hulbert has compiled three lists bout these kinds of value stocks in the past seven years and in each case, their average subsequent performance has been well ahead of the benchmark S&P 500 index.
In this new list, Hulbert’s report on the stocks and funds that are most popular among monitored investment newsletters he monitors provides favourite value stocks.
What is an investment newsletter?
Before we go too far, we need to understand what an investment mewsletter is. An investment newsletter is a list of ideas, but not your everyday ideas of how to get your crush to notice you and like you back. No. This is a well-reserched regular publication of attractive stocks for further research by subscribers.
They often include a few new stocks each month, or a list of general recommendations that subscribers may or may not consider adding to their portfolios. Sometimes these newsletters provide ratings on stocks like, “fair value” prices, or “buy below” prices, or recommend a sale. And yes, subscribers pay for these investment newsletters.
Value stocks vs. Growth stocks
Since it is becoming more evident that value stocks are still outperforming growth stocks, this new list of 30 stocks could not come in a better time.
In the past decade or so, there have been plenty of similar declarations about the performance of value stocks that turned out to be premature. However, it is a different case this time since, as I mentioned earlier, growth stocks have played catch up to value stocks for nine months consecutively, suggesting that the resurrection of value stocks is more than just a flash in the pan.
Another reason that analysts have mentioned that backs up their bet on value over growth stocks is the recent uptick in inflation. A disproportionate share of value stocks’ valuation comes from their current, as opposed to future years’ earnings, which is the case for growth stocks. This theoretically means that higher inflation and interest rates affect the value of growth stocks’ future earnings more than for value stocks.
Last week’s report of unexpectedly high inflation provides a test of that theory. On Wednesday, May 12, 2021, the Bureau of Labour Statistics reported that the Consumer Price Index’s (CPI) trailing 12-month rate of change had jumped from 2.6% to 4.2%, the value stocks within the benchmark S&P 500 outperformed the growth stocks by 0.9%.
These results are based on the returns of the Vanguard S&P 500 Value and the Vanguard S&P 500 Growth.
To construct this new list of newsletters’ most popular value stocks, Hulbert repeated the process he used in preparing the lists for the previous three lists.
“I first identified those investment newsletters monitored by my auditing firm that have been tracked for at least the last 20 years and which have beaten the Wilshire 5000 index on a dividend-adjusted basis over the entire time that they have been tracked,” he said.
He added, “I then identified those stocks that are recommended by more than one of these newsletters. Finally, I eliminated from this list any stocks whose P/E and price/book ratios are above those of the S&P 500 and whose dividend yields are below.”
Here’s the list, ranked in ascending order of their price/book ratios. For context, the S&P 500’s price/book ratio currently is 4.20, its forward P/E ratio is 21.5, and its dividend yield is 1.41%.
You will note that there is considerable turnover from each of Hulbert’s lists to the next but some of the stocks in this list also appeared in each of his three previous lists of favourite value stocks.