Earlier this week Ed published a piece exploring the idea of Trending Value – in other words, buying cheap, improving stocks with positive momentum. These might be stocks overcoming temporary difficulties or perhaps going through a period of transition.
The key is to ensure they have momentum as well as value – this is a quite different strategy to the Deep value approach Ed discussed previously.
In the StockRank system, trending value shares are typically those with high ValueRank and MomentumRank scores. Even more simply, we can look for stocks with a high VM Rank – you can find a handy listing of the Top VM Rank stocks here.
A new boom market?
I’d suggest exploring the VM Rank listings as a starting point. I can certainly see some shares that are on my radar on this list right now. However, I think there’s scope to refine this view further by narrowing down the selection using some additional metrics – or perhaps – by narrowing down the choice of sectors.
One interesting trend I’ve noticed in my own research over the last 6-12 months is the number of times my screening has flagged up industrial stocks as potential buys. One great example was Bodycote (LON:BOY), which I covered in a Stock Pitch in November last year.
What I’ve been finding is that these industrial businesses have often looked in quite good shape, reasonably priced and with a fairly positive outlook.
At the same time, I’ve faced a mental stumbling block due to the prevailing narrative that we could be facing a broader economic slowdown. If this happens, surely the outlook for industrials will deteriorate?
Well, perhaps it will. I certainly wouldn’t rule out this happening, at least in the short term. But I’ve become aware that there’s another medium-term narrative here that could drive a wave of momentum for industrial stocks and other related sectors, such as defence and infrastructure.
Are we heading for a capex boom?
Ed pointed me towards an article that tells this story very well.
In short, noted financial historian Russell Napier believes the wave of government-guaranteed loans we’ve seen since 2020 are becoming a policy tool for Western governments to direct banks’ lending – and thus, to direct capital investment.
As…
