In search of true value

In search of true value

16. november 2020Læsetid: 4 minutter

Last week, we saw one of history’s biggest shifts from growth stocks to value stocks. The question is whether this is only a temporary trend or whether growth stocks will return. Let us get straight to the point. There are no true values in the stock market. The only thing that matters to obtain a market value is when a transaction takes place, i.e. when there is a buyer and a seller who agree to carry out a transaction.

Everything else is theoretical values and discussions to arrive at a probable market price. Since Covid-19 hit, investors have paid sky-high for everything that is tech and that can benefit or at least be considered relatively unaffected during the crisis.

Zoom Video has benefitted enormously under Covid-19. The stock is traded at EV/Sales of 47x and of P/E 158x (estimate for FY ending January 2021), which in any case can be considered extreme values except for companies in very early stages or pharmaceutical companies with interesting products in the portfolio. Zoom is therefore an interesting stock to follow as it clearly shows the risk appetite for companies that benefit from Covid-19. Note that the trend is declining but that there is also local support where a gap has previously been created.

The vaccine from Pfizer is hardly the solution to all problems. Covid-19 now shuts the world down in a new wave and adjusts the seasonal patterns, so this wave will continue over the winter and release its grip on February-March. But if you look at Zoom, the market reckons that the worst can still be behind us.

What attracts investors are to a large extent that the presidential election in the USA is over and that it looks as if Biden is a clear winner. However, the Democrats did not win the congress. The blue wave that was speculated about did not occur, which means that Biden will not have free hands to raise taxes, which worries the stock market. However, he will be able to increase financial support, which benefits the stock market. The worlds central banks are also in the process of pushing new money in the market, and we know for sure from previous waves that this is favorable for both the fixed income and stock markets.

The hunt is now on for stocks that benefit in this climate. In the US, it is depressed value stocks that are in focus. And as can be seen from the graph below, there is still much to be gained for the value shares compared with the growth shares:

The broad stock market index Russell 2000 is a winner, i.e. small companies with mainly the United States as their market.

As mentioned, the losers are tech stocks with Nasdaq as an illustrative example. Note that Nasdaq is in no way in a negative trend. One could instead easily draw a wedge formation that shows rising bottoms and falling peaks, i.e. a consolidation before an eruption, up or down.

This is clearly seen in the Apple stock. Note at the bottom how the MACD is climbing upwards, which shows that the eruption may be at the top. We previously described Apple as a value stock as they generate an enormous amount of cash each year. But with an EV/Sales-ratio of 6-7x and a P/E of 30x (estimate for FY ending 30 September 2021), it is not as easy anymore. These figures presuppose continued growth.


Tesla is another stock with a similar wedge formation, but with a falling MACD.

The S&P500 index is in a continuing upward trend. Note how the index in the weekly graph below did not have the strength to break above the rising trend line.

In the daily graph, there is a little more left on the upside, but the index has clear problems taking out the previous top. Note however that MACD has generated a buy-signal and EMA9 is rising. The question is if this is enough.

The OMXS30 index is still struggling to take out its pre-Covid-top. Note however how MACD has generated a buy signal in a similar way as for S&P 500:

If we are looking for value shares on the Stockholm Stock Exchange, Hufvudstaden can be an alternative. This real estate company, with the most Stockholm CBD portfolio of all, is currently traded at a 20 percent Net Asset Value discount.

The German DAX index is struggling to take out the gap from February. MACD is again upwards sloping and the index is supported by a rising EMA9:

The Brent oil price did not manage to break above Fibonacci 50 around 43.75 USD per barrel. Will we see another downwards movement towards Fibonacci 38.2?

Bitcoin has been flying as shown in the weekly graph below. Note how resistance is getting close. Does the currency have enough energy to break up?

Legal notice

This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

The products are not capitalprotected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.

22-01-2021 04:23:20


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