Value stocks are almost by definition overlooked. These are generally defined as stocks that have low share price relative to the company’s fundamentals. In practice they’re your mid- to low-price stocks, the ones holding up the Russell 2000 and generally getting overlooked while FAANG stocks and platforms suck all the oxygen out of the room.
(FAANG is Jim Cramer’s acronym for Facebook (FB) - Get Facebook, Inc. Class A Report, Amazon (AMZN) - Get Amazon.com, Inc. Report, Apple (AAPL) - Get Apple Inc. (AAPL) Report, Netflix (NFLX) - Get Netflix, Inc. (NFLX) Report, and Alphabet (GOOGL) - Get Alphabet Inc. Class A Report.)
And in June, value stocks have started to lag. They’ve lost ground relative to the large-cap stocks that are, often, household names. Does this mean that you should move on from value stocks and chase after Apple and Microsoft (MSFT) - Get Microsoft Corporation (MSFT) Report?
Not so fast says Real Money contributor Paul Price.
“After a huge outperformance, from September 2020 through March of this year, value stocks started to lag large-cap growth names starting around the second week in June. Many traders are thinking that the long-term trend has now reversed. Based on history, that view is total hogwash,” Price writes. “… It will likely turn out to be just a counter-trend interruption of the longer-term trend.”
Over on Real Money, Price says, “if you agree, here is a list of 25 good value names I think are worth buying right now. Most of these figure to be very big gainers within 12 to 18 months.” See the list of 25 stocks and get more of Price’s investing ideas.
Value stocks took a beating during 2020, just like the rest of the market, but it’s the bigger picture that Price suggests readers look at.
“After the internet/tech bubble burst early in the year 2000 "value" stocks became wildly popular again. The next three years saw more mundane shares obtain a performance excess of 85.6% vs. growth.”
That marked the best consecutive 36-month run for value in history, he notes.
“Despite that great gain there were four sharp monthly declines along the way (red-areas below). I'm betting the last five weeks' sell-off versus growth is simply a similar pattern to what occurred between early 2000 and October of 2001 (right after the 9-11 attack).”
What does that mean for investors? For Price, it means that he’s putting his money in value stocks. The past few weeks might represent just an interruption in their overall rally since last fall. For investors at large, it begs the question: Are we seeing the beginning of the end of the FAANG market lock?