Credit: Shutterstock photoAfter all the fear and talk of a recession, stocks are now positive for the year, both the Dow Jones and S&P 500 went green late last week (fittingly enough on St. Patrick's Day.)
But not all stocks are positive. There's a big divergence between value stocks and growth stocks this year. Value stocks are positive for the year, while growth stocks are down. History shows us that value stocks should continue to outperform growth stocks for the next five to seven years.
This comes after value stocks have lagged growth stocks for the past nine years – and by almost ten percentage points last year.
Historically, value stocks have outperformed growth stocks for at least five years following periods when growth stocks greatly outperformed value stocks (1966–1973 and 1998–2000).
So if we believe we are entering another cycle where value stocks will outperform growth stocks, how do we find value stocks?
In general, value stocks are stocks with the lowest P/E, price to book, price to sales and price to cash flow. Other twists on value investing are simply looking at the lowest priced stocks (usually under $10) in a major index or stocks with the highest dividend yield in a major index.
All of the above are value–based metrics, and usually combining two or more of the above will give you the best edge in value investing.
For example, in the S&P 500 the four best performing stocks year–to–date are: Freeport–McMoran (FCX) (which we own in our Billionaire's Portfolio), Newmont Mining (NEM), Urban Outfitters (URBN) and Michael Kors (KORS).
All four of these stocks are up at least 40% or more in 2016. And all are value stocks. Michael Kors and Urban Outfitters are classic low P/E stocks, and Newmont Mining and Freeport–McMoran, low price to book stocks.
Another sign that value investing is coming back is that value investors are starting to outperform the market. Billionaire hedge fund manager David Einhorn was up 2% at the end of February of this year, and Warren Buffett's Berkshire Hathaway is up 8% in 2016.
You can invest in value stocks through indices and ETFs, but that will never give you the most bang for the buck. We have found the best returns come from piggybacking the world's best billionaire investors and hedge funds top value stock picks.
This year two of the best performing stocks in the S&P 500—Freeport–McMoRan and Michael Kors—happen to be owned by two of the best billionaire value investors, Carl Icahn and David Einhorn.
On that note: This is the perfect time to join us in our Billionaire’s Portfolio. We have a portfolio full of stocks owned and controlled by big influential investors, most of which have an explicit price target from our billionaire investor of a double or more. You can join us here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
