“We believe this wobble in value stocks is a pause, not a Key reversal” — Paul Ebeling
Cyclical companies remain the least over-valued in the US stock market. High sales-growth companies are trading at valuations nearly 2X their 10-yr averages, while cyclical companies are trading at valuations approximately 40% more than their historical levels.
The prospect of rising interest rates should also benefit higher quality value stock names that held up better in last yr’s downturn but have lagged during the recovery.
Savvy investors are increasing positions in utility and consumer staples stocks that have underperformed value stocks overall, betting that they will increase their dividend payouts, which would make them more attractive even if Treasury yields eventually rise.
The idea of dividend growth has been largely sidelined because all participants have been enjoying stock appreciation. We think this will be the next leg North of the value stock rally.
Have a happy healthy weekend, Keep the Faith!