A locally based boutique investment manager has predicted value stocks will provide the best investment opportunities during 2021.
Maple-Brown Abbott made the optimistic forecast on the back of the strong performance from value stocks in the final quarter of 2020.
“Some of the value stocks had an exceptional run. [For example] Simms Metal was up 75 per cent for the quarter as were many other value names,” Maple-Brown Abbott head of Australian equities Dougal Maple-Brown said.
Maple-Brown supported his analysis by highlighting the experience of some of the more well-known equities classified in the growth category over the same period.
“[If we look at] what I describe as the big-cap, typical growth stocks, and the poster child there would be CSL, CSL over the quarter [in terms of performance] was actually dead flat,” he revealed.
“So basically the official growth stocks went nowhere and in a strong market that [indicates] underperformance.
“However, the stocks did not de-rate at all, CSL [and its performance] being flat. So they didn’t go backwards, they just went sideways.”
According to Maple-Brown, the performance of what he described as hyper-growth stocks, such as Afterpay and Xero, provided further evidence of a favourable environment for value shares in the coming months of 2021.
“[These] stocks had unbelievable runs for the earlier six to nine months [and] then also kept on running well through [to] December. So hyper-growth stocks did not run flat like growth stocks, they actually went on with it,” he noted.
“[So the experience of growth and hyper-growth stocks] gives us confidence that when those stocks do de-rate, value will continue to do well.”
Maple-Brown cited the current valuation of the 40 most expensive equities on the Australian Securities Exchange as further evidence value stocks are set to perform well this year.
“Today the 40 most expensive stocks in our market are trading at least 45 times forward earnings, [which is] somewhere between three and four standard deviations expensive,” he noted.
“[So] when they de-rate, and they will, then value [stocks] will continue to do well.”''