Barron’s and I are singing from the same songbook these days. I’m bullish on Apple, Intel and on the automakers myself and am long AAPL, INTC and GM. Stocks are entering this year in expensive territory, though there are definitely values to be had.
I don’t share Barron’s enthusiasm for Big Pharma and retail and don’t consider either to be “value†right now. But I agree that, after a long period of outperformance, it’s time for value to shine again relative to overpriced growth.
This could be a year when value-oriented stocks beat their growth counterparts, after one of the worst years of relative performance for value. Growth stocks in the S&P 500 bested the index’s value components in 2015 by nine percentage points. Winners this year could include Apple (AAPL), Intel (INTC), Merck (MRK), Pfizer (PFE), Ford Motor (F), General Motors (GM), Dow Chemical (DOW), and major financials like JPMorgan Chase (JPM), Citigroup (C), Bank of America (BAC), and Goldman Sachs (GS). Some battered retailers already are getting a lift, including Wal-Mart Stores (WMT) and Macy’s (M).
MARKET LEADER APPLE remained under pressure last week, falling 8%, to $97, leaving the stock 28% below its 52-week high of $134, set in April. The decline has come as analysts scale back iPhone sales estimates and earnings projections for the current fiscal year ending in September. A lot of bad news seems reflected in Apple shares, which now trade for 10 times estimated fiscal-2016 earnings. Apple’s effective P/E falls to about eight after reflecting its huge net cash position of about $25 per share, or $140 billion…
Ford and GM illustrate why value investing has been so frustrating lately, as their inexpensive valuations and high dividend yields haven’t put a floor under the stocks. GM, at $29.65, trades for five times estimated 2016 earnings and yields 4.9%, while Ford, at $12.63, fetches six times projected 2016 profits and yields 4.8%. Both stocks fell more than 10% last week.
There have been few asset classes with strong results in the past year. Overseas markets—as measured in dollars—did even worse than the S&P 500 and got off to a poor start this year. It’s amazing that emerging market equities, as measured by the iShares MSCI Emerging Markets ETF (EEM), are back where they traded in 2009, having declined 25% in the past year.
