over 2 years ago • 3 mins
If you’re wondering where to invest next, this is a good place to start: some of the world’s top investors have been sharing their best ideas with Bloomberg.
This idea comes from Research Affiliates, which reckons buying value stocks – those whose prices are cheap relative to their fundamentals – is still the way to go.
Although that’s been the consensus trade of the last eight months or so, Research Affiliates reckons value stocks are now becoming strong momentum stocks too – that is, those that have been performing well over the past few months. And when value and momentum strategies are heading in the same direction, the firm argues it’s a potentially powerful buy signal.
This idea comes from BlackRock, which advocates sticking with two stock market themes: cyclicals and value. That’s because the rise of more speculative value stocks is stalling.
BlackRock, then, thinks investors should respond by selling off their higher-volatility value stocks in favor of higher-quality cyclical stocks – i.e. companies with high profitability and consistent earnings, like banks and mining firms.
Now, this idea – which came from strategists at TS Lombard – wasn’t among those shared with Bloomberg, but it’s along the same lines. By TS Lombard’s reckoning, we’re now past the peak of the global economic recovery in terms of growth rates, which means it’s time for you to be more selective in your stock picking.
The firm believes that value stocks and those that can pass rising commodity prices on to their customers are best placed for the next phase of growth. So it’s recommending that global investors globally go long materials firms versus short tech, and long consumer staples versus short consumer discretionary stocks.
Here’s why: materials shares tend to outperform when commodities’ prices are rising faster than stock prices, which could offer the sector some upside. The expensive-looking tech sector, meanwhile, could see its share prices depressed by profit-taking and disappointing near-term outlooks.
As for consumer staples, the sector’s more attractively valued than discretionary names. It’s also historically had more stable earnings, which suggests firms can manage higher costs, while discretionary companies are more exposed to profit margin pressures.
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