Analysts expect value stocks to maintain outperformance over growth stocks as interest rates rise and the economy falters.
Bears push back on his thesis by arguing that “something will break.” They believe rising rates will create systemic stress that takes out a financial player, which could bring down others. The stock is not technically “cheap” given that it has a forward price-to-earnings ratio of 18. But the key is that earnings are at a trough.
Lam Research LRCX, +1.97% : This company sells wafer fabrication equipment to chip makers. The stock is down 43% from 2022 highs because it faces two major problems. He notes that analysts expect a near full recovery in earnings after a 2023 rough patch. Meanwhile, Lam Research has a strong balance sheet, so it shares cash flow with investors via buybacks and the 1.67% dividend yield. He has a $599 price target.
Since 1966, the market has been at a major bottom when 72% of the names he tracks look undervalued. The market has been at major tops when the number of undervalued stocks dwindles to 17% or less. Recently, just 20% of his universe looked undervalued.Analysts are reducing earnings estimates. Fed Chair Jerome Powell is calling for flat growth to a half percentage point of growth this year. “Where in there lies a rosy picture?”Stocks There are stocks Wright considers attractive already.
Historically, the bank’s stock has been undervalued when its dividend yield rises to 3.15%. At $58 a share, the dividend yield is 2.85%, so it is close. The bank also trades for less than two times its book value of $31. While investors are worried about the impact of recession on business, Eastman has a strong enough balance sheet and cash flow to power through, and possibly take advantage of sector weakness by buying discounted companies in its space. Otherwise, it has a good record for returning cash to shareholders via buybacks and dividend increases.
This means Gates has cyclical exposure to the economy, so investors have been selling the stock. But Kaser thinks that is a mistake. Vodafone VOD, +2.32% : A lot of stocks have been trounced by the bear market, but few are as bad off as Vodafone, which offers telecom and cable services in the U.K, Europe and Africa. In the low-$10s range, the stock is trading at its lowest point in a decade.
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