The relative underperformance of value stocks (low P/E, low P/B) stocks could come to an end soon according to this Barron’s piece. While growth stocks typically outperform value in periods when growth is sluggish, the current issues with value stocks have less to do with a broad-based economic expansion, which is usually when value outshines growth, and more to do with the recent market sell-off. According to the piece, “when stocks enter a correction, defined as a drop of 10% or more, investors flock to the cheapest stocks. That, however, takes time, as investors wait to see if a bottom really is in place. If the pattern repeats, get ready for the market’s cheapest stocks to outperform in the months ahead.”
With the market trading at 15.1x forward earnings, valuations have come in a little but it’s not “teeming with value”, says Ben Inker of GMO. Still, the article highlights a few stocks, including Quanta Services (PWR), that look to be trading at valuations well below that of the market.