Caution, trap !: Bank of America: Investors should keep their hands off these supposedly cheap stocks | message
Shares in this article
indices in this article
• Bank of America strategists examined all stocks in the S&P 500
• 13 value traps that appear cheap but are likely to continue to fall
• 33 “Quality Value” stocks that actually offer promising opportunities
The US market is currently rushing from one record to the next. Both the NASDAQ Composite technology index and the S&P 500, which tracks the overall US market, posted one all-time high after the other. Stock bargains are few and far between in such an environment – nonetheless, investors are of course always on the lookout for undervalued corporate stocks that they believe will offer great price opportunities. But often such cheap stocks are cheap for a reason, Bank of America warned in a message to its customers. With many stocks that are apparently attractively valued, the development is likely to go further down rather than up in the future, wrote the BoA strategist Savita Subramanian according to “Business Insider”. She and her team have taken a close look at the stocks from the S&P 500 and identified 13 so-called “value traps” that investors should keep away from despite an undervaluation.
Experts: These papers destroy value despite their undervaluation
As “CNBC” writes with reference to the BoA study, the valuation gap between expensive and cheap stocks is currently bigger than it has been for years. Above all, growth stocks from the technology industry have rushed way up, but have also created the opportunity for undervalued companies to catch up with the tech darlings. “We prefer value over growth for a variety of reasons, ranging from macro to micro,” said Savita Subramanian, according to the US broadcaster in the customer statement. At the same time, however, she also had a warning ready for value investors: “Watch out for traps,” advised the strategist. Because, according to her, some seemingly cheap stocks are in truth “value traps” that would destroy money if investors invested.
Some stocks had simply underperformed the broader market for too long, so they now need an external boost to get out of the downward spiral, according to the Bank of America expert, according to Business Insider. And investors should probably not rely on this boost to come. In order to objectively identify these stocks, the strategist Subramanian and her team have defined three criteria: According to “MarketWatch”, they consider corporate stocks that are based on the expected P / E vs. of the ten-year history are actually undervalued, but the trend in the price momentum is below the median of the last three months. If, in addition to these two factors, there are also change trends that are below the median of the last three months, that is a sure sign of a “value trap” share.
Among the shares in the S&P 500, the investment bank’s team found 13 stocks from a wide variety of industries that meet the above criteria: KeyCorp, TechnipFMC, Flowserve Corp., Mohawk Industries, Welltower, Automatic Data Processing, Interpublic Group of Comanies , Molson Coors Brewing Company, Prudential Financial, Omnicom, Walgreens Boots Alliance, CenturyLink, and Unum all qualify as Value Traps. Investors should not put these stocks in their portfolios.
BoA: These undervalued stocks offer real opportunities
But the team around Savita Subramanian not only determined the “Value Traps” in the S&P 500, but also the “Quality Value” shares. These – like the value traps – based on the expected P / E vs. The ten-year history shows an undervaluation, but the trends in price momentum and change are above the median of the last three months. As BoA strategist Subramanian writes according to “CNBC”, such quality stocks can be found primarily in traditional cyclical industries, for example in the areas of household goods, cars, metals and mines, building materials but also semiconductors.
In fact, the 33 listed “Quality Value” shares are mixed up. Stocks from the financial sector are represented as well as stocks from consumer goods manufacturers and numerous stocks from the tech industry – and not just from semiconductor manufacturers. The investment bank names NVIDIA, Broadcom, Microsoft, Cisco, Morgan Stanley, Adobe, Salesforce, Dollar Tree, Kroger, Kraft Heinz and Netflix as quality stocks that investors should rely on as part of a value strategy. With these stocks, investors apparently need not be afraid of falling into a trap, according to Bank of America.
Finanzen.net editorial team
More news about Cisco Inc.
Image Sources: JMiks / Shutterstock.com, Rambleon / Shutterstock.com