Are Value Stocks Good Value?

Value stocks are cheap, but investors need to be wary of the difference between a value trap and a true investment opportunity

Cherry Reynard 20 August, 2019 | 12:34PM

warning

These are perilous times for fund managers with a value investment style. While on most measures, "value" stocks look lowly rated relative to growth stocks and to their own history, the penalties for getting it wrong are higher than ever. Recent research by EY showed profit warnings for UK quoted companies are at their highest level since the global financial crisis. 

A recent report issued by the BlackRock smaller companies team issued a stark warning: “The market needs to fundamentally reappraise the true value of over-indebted, structurally challenged business models, particularly those that are paying dividends they can’t afford. We think there are many of these companies out there masquerading as “cheap shares” because their “price to adjusted earnings ratio” looks low, and for too long other market participants have championed some of these shares as “value” investments.”

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About Author

Cherry Reynard

Cherry Reynard  is a financial journalist writing for Morningstar.co.uk.

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