growth versus value

Portfolio Themes: Spring 2022 Updates

graphic shows blooming white flowers and text reading "portfolio themes: spring 2022 updates"

In our portfolio management, we try to pick and choose our spots. We’re investing for the long term, after all. We are not indexers; we invest in individual companies for their unique characteristics and the potential behind their story. We avoid knee-jerk reactions to any day-to-day news.  

Sometimes, though, the daily news covers an issue that’s big enough to linger. Much of the news cycle lately has been dedicated to the war in Ukraine. The implications for the global economy are profound and have a direct impact on our work. 

The war may be accelerating trends that were already there, but now they are more pressing. 

OIL, ENERGY, FOOD, & BEYOND 

Maybe you’ve noticed at the gas station, but one of the big impacts is the price of oil. In the short term, we foresee great profits for oil companies, but skyrocketing oil prices and energy uncertainty have also renewed interest in the next energy revolution. Solar power and electric vehicles have been on their way for a long time, but the world needs them more urgently than ever before. 

These issues are interconnected with trends in agriculture. Ukraine and Russia are not only both food producers: they’re even bigger producers of fertilizers, supplies, and equipment. Agricultural commodities were already on the rise before war broke out, so food producers around the world were already investing heavily in new planting. The journey ahead will be interesting for even “boring” food production and distribution companies, but greater profits may be rapidly approaching. 

THE IMPACT OF INTEREST RATES 

Those rising prices have energized more interest in durable commodities such as copper and gold, which we’ve been following in our shop for a long time

But the double whammy of rising interest rates and rising materials costs has a cooling effect on the housing industry, which we have been easing out of by steps. The shortage in the nation’s housing supply persists—and probably will for a spell. For now, homebuilders are a longer-term, lower-priority investment for us. 

WHAT THE PANDEMIC MEANS FOR TECH 

In times of strife, investors tend to seek comfort and safety, so more volatile sectors such as technology are starting to come back down to earth. We believe this may create buying opportunities in software and internet companies, which are less vulnerable to high interest rates and commodity prices. (They are often light on debt and low on material costs.) 

Even as COVID-19 continues across the globe, some areas of life have become more manageable. The air is clearing a little for airlines and travel stocks, although we are more interested in another area of potential: biotech and pharmaceutical companies. While pharmacy stocks may be easing as the pandemic rally subsides, we are looking forward to new breakthroughs in the years ahead. The advances made in the pandemic, we believe, will prove to offer even more applications elsewhere in the future. 

TAKING STOCK 

The world is a complex place. As always, our thinking evolves on a weekly basis through our research process. Our vision, however, stays trained on these longer-term trends—and what they mean for our longer-term plans and planning. 

Clients, want to know what this means for your portfolio? Please email us or call. 


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.  

Stock investing includes risks, including fluctuating prices and loss of principal. 

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. 


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The Price Is Right! Come on Down… or Up!

A bargain is a bargain, right? We seek those opportunities that may be undervalued by others right now. But there are other types of bargains lurking, too: those opportunities that get the label of overvalued right now… but may actually have years of growth ahead of them!


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Growth Expectations and Searching the Bargain Bin

photo shows a pair of binoculars sitting on their case

I’m familiar with someone known to venture out on sunny weekend mornings to wander local garage sales. Their first target, wherever they stop, is usually to the area marked “FREE.” This is the stuff that the sellers don’t want so badly they wouldn’t even bother with a price tag.

My acquaintance is a bargain hunter. They know that there’s a chance they find something that can be repurposed or reused, that could bring them value far beyond the cost of finding it.

We here at 228 Main spend much of our research time searching for bargains, too. Occasionally, this takes us to Mr. Market’s version of the “FREE” table—things that seem so undervalued by most investors, we may get rewarded. These opportunities get to a point where things can’t possibly be as bad as people are saying (no guarantees, mind you).

But as we’ve been growing, our thinking on this has stretched a little. Sure, we still dig for the bargains of old, but we are also looking at things that our fellow bargain hunters might call “overvalued.”

When a stock is labeled as “overvalued” (by us, the financial news outlets, Wall Street…), typically the labeler is leaving out the “right now” part.

Since we’re investors, aimed at the long haul, the “right now” part is less interesting to us. Instead…

  • How long does “right now” last?
  • Is the price fair right now knowing that we’re buying for the next 3–5 years?
  • Are we paying a reasonable price for the next… however many years of future growth?

Again, we can’t promise that future growth pans out, but a good story, an intriguing product mix, and some competent management are all things we’re considering for these growth-y companies. It’s exciting.

Clients, if you would like to talk about this, or anything else, please email us or call.


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Growth Expectations and Searching the Bargain Bin 228Main.com Presents: The Best of Leibman Financial Services

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Seasons and Cycles: Things Grow and Things Rest

photo shows four leaves at different point of their life (dark brown, light brown, yellow, and green)

Even in the heat of summer, I can’t help thinking about the cycles of nature—such a useful way to think about the cycles in the economy and the markets.

Winter, the fallow season, is a time for regeneration and recharging, getting ready for future growth. In spring seeds are planted and the first green shoots hint at better days ahead. Then a season of growth produces crops in a cornucopia of kinds and colors, to be harvested in the fall. Then it is time for rest and rejuvenation again.

Likewise, the economy grows and rests in turns. In recessions, excesses get corrected. Overall business activity shrinks. Resources used by businesses generally decline in price. Ultimately, a new growth cycle is spurred by the impulse to make a dollar by meeting the needs of others. Producers of goods and services prosper, until excesses create the conditions for recession again.

Unlike nature, however, the economy has a less-set schedule. The last recession was a just a two-month affair; some are two years long. Growth cycles may also be long or short. And further complicating things, some investments do well when others do poorly.

So we look for companies that have seasons of growth ahead, the best bargains we can find. For some holdings, it pays to own over extended periods, firms that dominate their sectors and will emerge from slowdowns in better a position to prosper in the future.

And when the slowdowns occur across the whole economy, we trust that, just as winter gives way to spring, the economy will find new growth after the recession. It always has, every single time in American history, although there are no guarantees about the future.

Clients, if you would like to get your portfolios in closer alignment with the seasons in the market, please email us or call.


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Seasons and Cycles: Things Grow and Things Rest 228Main.com Presents: The Best of Leibman Financial Services

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Got To Do It? Get To Do It!

photo shows a bunch of balloons against a blue sky

Sometimes the business of life feels just like that: business. The business of staying healthy requires an occasional trip to the dentist or a plateful of greens when you’d rather eat something else.

But we’ve noticed a curious thing lately among some financial planner types. One related that a client said their meetings were like going to the dentist. Another compared the task of financial planning to eating your vegetables. Both talked about the planning process as something that is unpleasant, necessary, but good for your long-term welfare.

Our business with you does not feel like that.

Clients, we wouldn’t pretend to speak for you, but we often find both relief and joy in finding order in life’s chaos. It’s a pleasure to come to understand the meaning of your wealth. It seems we all get a little giddy when we check in and confirm you are on track for your long-term goals or can get your investments better aligned with your values.

What a treat!

As time goes by, the product of investment gains is sometimes wealth beyond expectations. (No guarantees, of course.) Reviewing a long history of beginning balances growing over time feels more puppy dogs and rainbows than dental appointments and bitter veggies.

Psychologists say attitudes are contagious. Some people have told me that I myself have a positive outlook. But that probably would not fully explain the difference in the tone and tenor of our meetings, compared to those dental appointment types. Maybe it comes down to these things:

  • We look for a good philosophical fit before we even begin a working relationship.
  • We believe that those not born with good investing instincts can learn.
  • We trust people to be the experts of their objectives and what they want to accomplish.
  • We strive to meet people where they are, to talk about our areas of expertise in only those ways that everyone participating has a grasp of what is going on—and what we are doing about it.
  • We keep our focus on the long term, to increase the chances that people get to their most cherished goals.

People working together, in mutual respect—that’s what we strive to be about. And what a joy it can be.

When you’re ready to collaborate on your plans and planning, email us or call.


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Extreme Discounts

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One of the basic distinctions made in the stock market is between growth and value. Growth stocks offer the potential or history of above-average growth in revenues and earnings. Investors are buying a brighter future.

Value stocks present a low cost in terms of price for a current dollar of earnings, or price/earnings (P/E) ratio. In the late 1990’s growth stock boom, value stocks were derided as “old economy” stocks. The exciting “new economy stocks,” computer chip and internet and fiber optic companies, were all firmly in the growth camp.

Investing in growth worked well until it didn’t. Value stocks went nowhere until the Tech Wreck, when growth stocks peaked and then fell a long way. The stock market often experiences periods where one of these factors outperforms, and the other one lags.

A recent article at MarketWatch.com1 detailed the work of a Wall Street analyst who claims that value stocks are at their biggest discount relative to growth in many years. The charts show that valuation differences generated by a decade of strong growth stock returns put value stocks at perhaps the biggest discount in history relative to growth.

In plain language, the bargain stocks have generally become bigger bargains.
When there are sound reasons for expecting better stock prices at some point in the future, we may own companies that are underwater, or down from what we paid for them, for an extended period.

We strive to own the best bargains. It is hard to watch as bargains become even better bargains while more expensive stocks do better. But we know how this works. We believe that sooner or later the bargains will produce gains.

If the differences in valuations are at extreme levels, perhaps the trend change is coming sooner rather than later.

Clients, if you would like to talk about this or anything else, please email us or call.

Notes & References

1. MarketWatch, “Value Stocks are Trading at the Steepest Discount in History”. https://www.marketwatch.com/story/value-stocks-are-trading-at-the-steepest-discount-in-history-2019-06-06. Accessed June 14th, 2019


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.