By: Esteban on Sabato 14 Luglio 2007 17:00
Certo Ferpa,
Il problema è che con le stesse regole ora pensa che il mercato sia
il + caro degli ultimi 40 anni !
FORBES -
Should You Still Buy Value Stocks?
David Serchuk and James M. Clash 04.09.07
^Grantham is the professorial chairman of Boston money management firm GMO. He knows from experience that growth and value spurts tend to run in five- to seven-year cycles, and it is time for a change.
(serve la registrazione perciò copincollo.)
After a seven-year run value stocks are pricier than ever. When Jeremy Grantham says that, it's time to think about buying growth stocks instead.
At the end of the 20th century some starry-eyed investors spied the dawn of a new paradigm. Technology, productivity and the Internet knew no bounds, and so it was impossible to pay too much for a stock like Amazon (nasdaq: AMZN - news - people ) or Cisco (nasdaq: CSCO - news - people ). Meanwhile, value stocks--those trading at low multiples of sales or book value--languished.
Today the situation has reversed. Everyone, it seems, is a fan of value. What does that tell you? Probably that you should sell value stocks and buy something else--namely, growth stocks. You pay extra, of course, for companies with better prospects, but not much extra. In today's market, traditional growth companies like Microsoft (nasdaq: MSFT - news - people ) and Johnson & Johnson (nyse: JNJ - news - people ) are comparative bargains.
For evidence that value stocks are overbought we can find no better witness than Jeremy Grantham, a famous fan of the genre. A fan, that is, when value is indeed cheap. But it isn't cheap now, he says. Grantham is the professorial chairman of Boston money management firm GMO. He knows from experience that growth and value spurts tend to run in five- to seven-year cycles, and it is time for a change. "The last time one market segment won this consistently was growth's final run from 1999 into early 2000," he says. "And we don't have to tell you how that party ended."
As a market savant, Grantham, 67, has few peers. A value-oriented fellow who has studied market trends for decades, he called the end of the 1990s tech bubble before it burst, and then he forecast the current heyday of value stocks.
Grantham's firm (assets under management: $141 billion) has a stellar record managing money, mainly for institutions and a few wealthy folks. Grantham is the sole founder still working full-time at the firm, whose acronym stands for Grantham, Mayo, Van Otterloo & Co. Richard Mayo left the firm a few years ago, and Eyk Van Otterloo is still a director.
GMO has a handful of high-performing mutual funds, but with minimum investments of $10 million, they are out of the reach of most. Over the past five years, amid broad popularity of foreign investments, GMO International Intrinsic Value II clocked a 19.5% annual return, beating its benchmark, the MSCI Europe Australasia Far East index, by 4.9 percentage points. Its U.S. Intrinsic Value III portfolio had a respectable five-year annual return of 6.7%.
You have to admire GMO's devotion to the number crunching that is the basis for its successful augury. In 2001 GMO called the market turn by comparing the average price/book ratio of the 125 S&P stocks that had the lowest such ratios with the index as a whole. The historic average ratio for the bottom quartile is just over half that of the whole index. Then as the tech bubble burst, the lowest quartile averaged just one-quarter of it, which looked like a bottoming and heralded a turnaround.
If you'd followed Grantham's advice back in 2001, you'd be content. He saw double-digit growth ahead for small and midsize value stocks, and that is exactly what happened (see chart). In fact, value funds specializing in companies with small (averaging $1.5 billion) market capitalizations returned 13.6% annualized over the past five years, and midcap value reaped 13.4%. Large-cap value didn't do as well as its smaller brethren (8.2%) because it has become a repository for onetime hot-growth companies like General Electric (nyse: GE - news - people ) and Pfizer (nyse: PFE - news - people ), which have joined the value ranks as their once towering P/Es shrank.
Over the past five years small and medium-size growth companies returned more like 8% annually. Large-cap growth, by comparison, returned a miserly 3.4% annually during that time.
Grantham uses the same methodology as he did earlier in the decade to conclude that today's value stocks are way overpriced. Take that comparison of average price/book ratios for the cheapest 125 S&P stocks (in price/book) with the average for the index as a whole. Normally the clunker stocks go for 50% of the S&P's price/book; now they're at 65%. What's more, value stocks are not only expensive relative to 2001, they're more expensive than at any time over the past 40 years. "Low price/book stocks don't win by some divine right," says Sam J. Wilderman, a GMO partner. "They win when they are priced to win, and they've never been this rich."
Indeed, small-company value stocks (like Jos. A. Bank Clothiers (nasdaq: JOSB - news - people )) are riskier than the large company value (like Altria (nyse: MO - news - people )) because the small ones tend to have less stable returns and lower profit margins. And, Grantham warns, midcap value names are the riskiest yet. Reason: So many investors took part in the small-stock boom that they've bloated the market value of a lot of smaller firms (small in revenues, employee count and so on) into the midcap range.
Louisiana-Pacific Corp. (nyse: LPX - news - people ) might look cheap. By conventional metrics it's a value stock because it goes for 17 times earnings. But its three-year earnings growth is hardly praiseworthy (--20%), and it's trading at the high end of its historical P/E range.
The explanation for the mid- and small-cap craze, says Grantham, is that the business climate of the past few years--featuring high consumption, high global growth in economic output and fat profit margins--has been so strong that it has spilled over to smaller companies. Their suddenly robust financial performance attracts inordinate Wall Street interest, especially for the relatively cheap small stocks. "So their profit margins have gone up more than the Mercks, the Eli Lillys and the General Electrics," he says.
What should an investor do? Search for buys in the lagging large-company growth category (see "The New Value Stocks" table). Stocks like Microsoft and Dell (nasdaq: DELL - news - people ) look like buys, given their earnings growth and their past p/es.
The two GMO funds cited before stay in large-cap territory, and they weathered the 2000--02 bear market quite nicely; while they lost money in some of those bad years, they beat the market every time. Lately the strategy of GMO's U.S. value fund has been to take advantage of a change in the value game board. It tilts away from value stocks that have become overpriced and favors ones that have fallen from the growth category.
Since few investors can afford a GMO fund, we've collected some alternatives (see "How to Navigate the Coming Value Collapse" table). These five funds, which get mostly good grades from FORBES for their performance in bear markets, charge below the 1.6% yearly average for domestic actively managed funds.
The Yacktman Fund holds some dispirited names that could come back. Returning 12.5% annualized over the past five years, the fund earns just three stars overall from Morningstar, (nasdaq: MORN - news - people ) although it, too, easily bests the S&P 500. This fund's leading holding is Coca-Cola (nyse: KO - news - people ), making up 9% of its net assets. The soda giant has seen some hard times recently; its $48 share price is $10 less than in late 1999. The P/E has also slumped: 22 compared with 59 during the bubble. Sounds like a buy. In addition, the fund holds once lofty Microsoft.
Now let's take a look at the overheated value stocks, whose current market runs, if Grantham is right, represent a value peak. In 1999 Boeing (nyse: BA - news - people ), Federated Department Stores (nyse: FD - news - people ) and Harrah's Entertainment (nyse: HET - news - people ) were genuine value stocks, with price/earnings ratios half the market's 30. Now they are all trading at P/Es above the market's average P/E of 17. For the moment their prospects look good. Boeing is enjoying a surge in airplane orders, Federated a revival at Macy's, Harrah's a boom in casino traffic.
But don't expect their premium P/Es to last. The best idea: Sell now.
