Is Value Investing Dead? You Make the Call
Making money long-term has become easier due to the short-term mindset of most traders.
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Regular readers of my columns know I am a die hard “value investor.”
What does that mean? I search out undervalued stocks which appear poised for great rallies over time horizons that might stretch out to months or years rather than hours, days, or weeks.
That goes contra to what most “traders” are looking for. They want to see quick gains (or losses — often through stop-loss orders) over short periods of time.
Traders care little about valuation. When you plan to hold for short periods of time momentum seems to be the key consideration. Objects in motion tend to stay in motion, right?
Does poor momentum mean a stock is bad? Nope. Does great upward momentum mean that stocks will only continue higher? Nope, once again.
Cheap stocks can get cheaper. Skyrocketing issues sometimes crash and burn with no warning.
The two things you can be sure of are that bad-looking charts, by definition, allow you to own shares at relatively low entry points and buying upside breakouts means paying more than others had been paying for the same shares in the recent past.
A book has been written, and touted on CNBC, called “Buy High. Sell Higher.”
An obvious fact about short-term trading… you can never take advantage of the lower capital gains tax rates if you never hold longer than one year.
Is Mr. Terranova’s claim that “buy and hold is dead” true? I say, “No.”
Here are three examples of stocks I have written up here on TheStreet Pro at much lower prices. Each appeared significantly undervalued yet was trading at an extremely attractive quote.
All three seemed grossly cheap and ready to “catch-up” to fair values within reasonable time horizons. Much stronger fundamentals were not being reflected in their prices back then.
AZZ Inc. AZZ and Ball Corp. BALL were priced well below rational evaluations of where they should have sold.
American Woodmark AMWD carried a "Sell" rating from Value Line based strictly on poor share price momentum. Value seekers like me, though, should have noted its super-low (by historical standards) P/E.
At the same time Value Line said to get out of AMWD, it projected large gains over the coming 18-month and 3-to-5-year time periods. Go figure.
My own take on AZZ figured it would rise to at least around $70 within 15 months. As it turned out, the stock shot even higher.
AZZ drifted slightly lower through May 2023, testing investors’ patience. Since then, though, the shares more than doubled. AZZ set a recent peak of $84.52 this month.
In September 2023, when BALL was offered at about $50, I set an end-of-2024 goal price of about $85.
As of April 30, 2024 that goal appears attainable.
Like AZZ, BALL drifted a bit lower before getting going. Since bottoming at $42.81 last October, BALL heated up dramatically. It hit a 52-week high of $71.32 intraday on April 30, 2024.
I let subscribers know that American Woodmark was my single largest holding back in September 2022. It was then available for under $48. My 16-month goal of $104 might have seemed fanciful at the time.
By late February of 2024, that target price was reached. AMWD changed hands at $104.28.
What Are the Key Takeaways From All This?
- Value Investing still works.
- Over my 45 years of buying stocks my target prices proved pretty accurate about 80% of the time over 12–24-month horizons.
- It is okay, or better than that, if a stock you like goes lower before it goes higher. You can average down on positions at lower quotes while building up larger positions.
- Barring takeovers or other unpredictable events, it takes time for shares to make 50% to hundreds of percent moves higher.
- Nothing feels better than taking large gains at low tax rates, except for taking those big profits in tax-free Roth IRAs or Roth 401(k)s.
Making money long-term has become easier due to the short-term mindset of most traders. Few people seem content to buy out-of-favor names which might not move immediately.
That leaves the playing field wide open for true contrarians.
More From Paul Price:
At the time of publication, Price was still long shares and short options in AMWD, BALL and AZZ. His current #2 largest holding is Jack in the Box JACK, which I have been adding to almost continuously recently as it carved out new 52-week lows. He is long shares and short options on JACK.
