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The Search for Value

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:

Companies that have larger book values than the current prices of their stocks have been a great set of companies to own going back to the late ‘80s.

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

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