Contrarian breakouts - value stocks on the move

Friday, Mar 06 2015 by
8
Contrarian breakouts  value stocks on the move

Bull markets can be a mixed blessing for value investors. On one hand, a rising tide of prices can quickly propel undervalued stocks back to their intrinsic valuations (and beyond), which is exactly what a value junky wants. But the problem is that the pool of mispriced stocks soon dries up. And that makes it difficult to recycle capital back into the market. With that in mind, it's interesting that two of the best performing guru-inspired strategies tracked by Stockopedia this year are both value-focused contrarian approaches. It suggests that despite the bullish conditions there are pockets of value out there… and the quality is there too, if you look carefully.

To get an idea about how racy conditions affect value, just take a look at 2013 (in the top chart). Back then funds flowed freely into small and mid cap stocks and value strategies were some of the big winners that year. But in 2014 there were far fewer good quality value opportunities around and the same strategies undershot the market. This sort of pattern is familiar to academics - researchers from Cass Business School examined it in detail here.

54f99ee63e3e7Value_2013.png

54f99eff6d97dValue_2014.png

Where is the value?

Opinions are divided on how far up the bull curve the UK stock market is, but many would agree that 2015 has got off to a reasonably positive start. The FTSE 100 has been hitting new highs and the FTSE All Share is up by 6.2%. But two of the value strategies we track at Stockopedia are easily outpacing them:


John NeffWhat makes these strategies interesting is that they riff on the concept of contrarianism. John Neff, a highly regarded US fund manager, made his name as a contrarian value investor although he preferred the term “low price-earnings investor". He focused on buying good companies with moderate growth and high dividends while they were out of favour, and then selling them once they rose to fair value.

David DremanDavid Dreman took a similar view. In his book Contrarian Investment Strategies, he acknowledged that he…

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Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>


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3 Comments on this Article show/hide all

herbie47 6th Mar '15 1 of 3

Think you mean 2015 has started well?

Yes I agree about buying out of favour shares, there are plenty more you have not mentioned, for instance Tesco, ECM, Serco, IRV, IOM, CCL, most of these have recovered quite well, some like CCL and Tesco are up over 40%, yes canbe be tricky finding the bottom but 40% in a few months in a FT100 company can't be bad?

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Ben Hobson 6th Mar '15 2 of 3

In reply to post #93943

herbie,

Oops - thanks for spotting (time flies...!)

Absolutely. Funnily enough I bought Tesco as a wildcard for my in-house Stocko fantasy fund in early Jan. They laughed in the office... but they're not laughing now !

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herbie47 6th Mar '15 3 of 3

Yes I bought some at 164p but sold out too early. Most shares have a bottom and bounce back even the bad ones seem to. A few others that have bounced back ASOS and Xaar.

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