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Value's time to shine says Swisspartners CIO

Value's time to shine says Swisspartners CIO

Headlines around Brexit and the US presidential election have stolen the spotlight from value stocks, which are currently on the rise. 

This is according to Swisspartners CIO and former cover star Peter Ahluwalia, who says value equities performed better this year than in the past.

‘It seems investors are not ready to pay an additional high price for growth anymore. According to MSCI World Equity Growth Index, growth equities were traded at a forecasted price-earnings-ratio of 19.4 in 2016, while this parameter on the value equities side is 15.6.’  

Ahluwalia said that in the value space he likes names such as French insurance firm Axa, which is trading at 0.7x price-to-book value, with a free cashflow yield of 35%, divided over 5% while its PE is 8.5 times forward earnings.

Other value names the asset manager likes include French auto parts manufacturer Faurecia, US biopharmaceutical company Gilead Sciences, computer data storage company Western Digital and Apple.

He said all these names meet his strict valuation criteria: to have a comprehensive business model, high liquidity, catalysts to release value and being top quality.

Energy plays

Ahluwalia said value investors show a renewed interest in commodities and energy sectors. He added that in the traditional energy space there are no names that meet his strict criteria.

‘We like oil refiners such as US-based Valero Energy and Marathon Petroleum Corporation, however you have to be careful on timing. In the traditional commodities space we like a British-Australian metals and mining corporation Rio Tinto.’

When commenting on the overall developments in the sector the asset manager said OPEC took a softer tone, as it made a decision to reduce oil production for the first time in eight years.

‘Officials in Saudi Arabia are harbouring hopes for an oil price of 60 US dollars per barrel at the end of the year. This kind of news has a reinforcing effect on the oil and energy sector, which has been reducing workforce and capital expenditure for a long time.’

Banks in vogue

The asset manager said investors, who are on the lookout for attractive prices, are focusing their attention more on the US and European banking names.

However, Ahluwalia thinks one has to be careful investing in the sector.

‘The combination of low net interest margins, increasing capital requirements and startling fines for past regulatory sins eroded the faith in the sector.’

He is not overly enthralled with banks, although they may appear cheap for those who really understand their balance sheet.

‘We are also somewhat concerned that they are turning into “piggy banks” for governments as fining banks at the moment is considered a victimless crime.’

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