The Search for Value
A couple weeks ago we looked at what was and wasn’t working over the past 12 months.
Today we are going to dive in a little deeper.
As you may recall, the best-performing set of companies over the last 12 months was undervalued companies, specifically those undervalued on a book-to-price basis.
Essentially, these are companies that have larger book values — the value of their assets — than the current prices of their stocks.
More importantly, this has been a great set of companies to own going all the way back to the late ‘80s. Take a look:
The green line marks the very low-valuation companies based on their book-to-price ratios.
The other top-performing one was the next batch of low-valued companies.
The next line is simply the benchmark: the S&P 500 Index. You can clearly see that high-valuation companies tend to consistently underperform, with each set — average valuation, high valuation and very high valuation — underperforming about the same.
If you’re a long-term investor, you definitely want exposure to companies that are considered undervalued.
Chad Shoop, CMT
Editor, Automatic Profits Alert