Value stocks are having a moment. With inflation and interest rates on the rise, interest has shifted to value stocks and many market watchers are predicting that value will outperform growth in 2022.
But first, what are value stocks and what does value investing mean?
In simple terms, value investing is all about investing in underappreciated stocks in the belief that their intrinsic value will eventually be realised. The most common way to spot an undervalued stock is through its price/earnings (P/E) ratio, the standard gauge of a stock’s affordability.
Value stocks often have low P/E ratios, meaning their stock price relative to their profits are low. It may be because the company is operating in a sector that’s been affected by an economic downturn, or because the company’s business model is seen as traditional or staid. As such, many value stocks often belong to cyclical industries where their performance is linked to the overall health of the economy....