After stocks tumbled on trade tensions this past week, Wall Street quickly offered more repositioning advice than a yoga class, with none of the relaxation.
Get defensive. No, defensive stocks look expensive. Avoid companies that import from China. No, buy them, as long as they have enough pricing power to pass along higher costs to customers. Reduce large-caps. No, look to them as havens.
The good news is that stocks recovered for the most part by week’s end. The bad news is that if things keep going well, we might all need more repositioning.
Forget news-based portfolio management. Investors shopping for stocks are better off simply favoring cheap ones with decent long-term growth prospects than reacting to each new development on tariffs and other fleeting factors. Five ideas in a moment.
One tariff question worth considering is whether a full-blown trade war would tank the U.S. stock market. Not necessarily. The first round of tariffs that the Trump administration placed on $50 billion worth of Chinese imports last summer, along with China’s retaliatory tariffs, will sap only about $1.50 a share from S&P 500 index earnings, calculate strategists at J.P. Morgan. That is presumably baked into Wall Street’s estimate of $167 a share in earnings for this year.
The latest round, expanding tariffs to another $200 billion of goods, could raise the cost to about $5 a share, assuming China retaliates. And an all-out trade war could cost $9 a share. That means an S&P 500 that traded recently at 17 times this year’s earnings would go for about 18 times earnings if trade talks fall apart—still attractive relative to ultralow yields on Treasurys. J.P. Morgan predicts that the S&P 500 will hit 3000 by year end, up 4% from here, as investors increase their stock exposure from cautious levels and companies continue to buy back stock.
For investors looking to put money to work, another question is whether cheapness is still a desirable attribute in stocks. Growth stocks have outperformed value stocks for so long that value investing appears broken. One reason is that the world has never seen companies so large growing so fast as now.
(AMZN), whose $940 billion market value makes it the second-largest U.S. company behind
(MSFT), is expected to increase revenue 18% this year.
(FB), No. 5, at $533 billion, is seen growing 24%.
Even so, the underperformance of value stocks has left them more attractive than usual, asset manager GMO noted in an analysis this week. By its math, value stocks in recent decades have traded at an average discount to the broad market of 24%, but now can be had at a discount of 31%.
We screened recently for sold-off stocks that, relative to earnings, are cheaper than both the market and their own five-year averages. Among these, we searched for companies whose growth opportunity appears brighter than gloomy valuations suggest.
(SCHW) has sold off from a high of $60 a year ago to a recent $43 and change. That puts the stock at 15 times earnings, versus a five-year average of 22 times. Brian Yacktman, manager of the
fund (YCGEX), which ranks near the top of its peer group for one-, three- and five-year performance, calls Schwab the Amazon of financial services. “They’re a low-cost leader, which is great for gathering assets,” he says.
Rising interest rates last year had promised to expand profits for banks in general, but now the Federal Reserve has put rate increases on hold. The outlook is a bit more complicated for Schwab’s bank, because it thrived when rates were near zero, and the company’s brokerage and mutual fund customers were happy to leave balances at the bank for convenience. Rising rates had some customers shifting cash around to find higher yields, but that process appears to be winding down. Anyhow, the fine details of interest-rate sensitivity might miss the point. Schwab grew revenue 14% last quarter, to $2.7 billion, a 15th consecutive record. Wall Street expects years of healthy growth ahead. The stock had been prohibitively expensive until recently. No longer.
(TPR), formerly Coach, has lost 30% in a year. It trades at 11 times earnings, versus an average of 17 times over the past five years. Yet UBS analyst Jay Sole predicts a rebound to 17 times. How’s that? Investors view the company’s Coach and Kate Spade brands as fading, but Sole sees signs that Coach is stabilizing and predicts that Kate Spade can become a $2 billion brand over time, up from $1.2 billion now. His outlook calls for 9% compounded earnings-per-share growth over the next five years.
If that seems too bullish, note that the consensus outlook implies a compounded growth rate of 8%. Handbags aren’t the runaway hit they were a decade ago, but they’re still growing. Tapestry stock comes accessorized with a 4.4% divided yield.
NTM=Next 12 months
Investors who have forgotten what it looks like when hot growth stocks turn into value stocks can look at
(REGN) for a reminder. The biotech sector has been hammered on fears that policy makers will crack down on drug pricing. Regeneron is doubly vulnerable because 60% of its revenue comes from U.S. sales of Eylea, for certain retinal diseases, and
(NVS) aims to introduce a rival as soon as later this year. If it succeeds, Regeneron could be forced to discount.
Regeneron is playing offense by working to expand uses and delivery methods for Eylea, while growing another drug, Dupixent, beyond inflammatory diseases such as eczema to new ones like asthma. Longer term, Regeneron hopes to make a push with cancer drugs now in trials. The consensus view is that, net of pluses and minuses, earnings per share will grow by 5% a year compounded over the next five years. Some analysts see much faster growth, and others, declines. The stock, which briefly topped $600 in 2015, recently sold for $305, even though earnings per share nearly doubled over that stretch. That means shares can be had for 11 times earnings—about the cheapest they have ever been.
Global auto production fell 7% during the first quarter, which is hardly a reason to get excited about
(BWA)—especially because it has sales exposure to China. But if you’re looking for reasons, here are three. First, the company has a favorable product mix of things like turbochargers, which can add power to small combustion engines, allowing car makers to boost efficiency, and systems used in hybrid and electric cars, which are expected to gain market share over time. So notwithstanding the current downturn, earnings per share could grow at a high-single digit yearly rate, on average, over the next five years. Second, the shares go for a scant eight times forward earnings estimates.
The third reason is that the recent auto downturn looks a lot like what happens during a typical recession. Why is that a positive? “Underlying results from auto suppliers fared better than what we believe many investors have come to expect for this group when the next ‘true’ recession arrives,” Baird Equity Research analyst David Leiker wrote in a note to investors this past week. Indeed, Borg’s earnings per share are expected to dip just 6% this year. If that’s what hard times look like, the shares could deserve a higher valuation.
Chip chiefs like to say the industry is no longer as cyclical as it once was, and they have a point. The industry would thrive and crash with personal-computer demand. Now, silicon proliferation everywhere means that a lull in, say, cars, can be offset by a surge in smartphones. But the past year shows that less-cyclical isn’t the same as not cyclical. A glut of memory, for example, has cratered prices, forcing manufacturers to slash output. That is hurting equipment makers like
(AMAT), but also creating an opportunity for long-term buyers.
The stock sells for 12 times forward earnings projections, down from a five-year average of close to 14. Applied is expected to take a 31% hit to earnings per share in its fiscal year ending in October, but to begin recovering thereafter. Expectations are low enough that the stock rose 2.5% during a market decline on Friday after Applied reported second-quarter financial results on Thursday evening. The company isn’t calling a bottom in end markets like chips or displays, but B. Riley analyst Craig Ellis wrote on Friday that he sees signs of stabilization in both. He upgraded the stock to Buy from Neutral, with a price target of $54, implying more than 25% upside.
一个值得考虑的关税问题是，全面的贸易战是否会让美国股市陷入困境。不一定。根据摩根大通( J.P . Morgan )策略师的计算，特朗普政府去年夏天对价值500亿美元的中国进口商品实施的第一轮关税，加上中国的报复性关税，将使标准普尔500指数收益中的每股收益仅减少约1.50美元。这大概是华尔街今年每股收益167美元的估计。
如果中国采取报复行动，最新一轮关税将扩大到另外2000亿美元的商品，其成本可能会提高到每股5美元左右。而一场全面的贸易战可能花费每股9美元。这意味着，如果贸易谈判破裂，最近市盈率为17倍的标准普尔500指数( S & P 500)，市盈率约为18倍——相对于美国国债的超低收益率而言，这仍具有吸引力。摩根大通( J.P . Morgan )预计，随着投资者从谨慎的水平增加股票敞口，企业继续回购股票，标普500指数年底将达到3000点，较上年同期增长4%。
（ AMZN ）市值9400亿美元，是美国第二大公司
尽管如此，资产管理公司 GMO 在本周的一份分析报告中指出，价值型股票的表现不佳使得它们比以往更具吸引力。根据其数学计算，近几十年价值型股票的交易价格平均低于24%的大盘，但现在可以有31%的折价。
（ SCHW ）已从一年前60美元的高点跌至最近的43美元，并发生了变化。这意味着该股市盈率为15倍，而5年平均市盈率为22倍。Brian Yacktman ，
基金公司（ YCGEX ）将施瓦布称为金融服务的亚马逊公司（ Amazon ）。“他们是一个低成本的领导者，这对收集资产非常有利，”他说。
前教练 TPR 在一年中损失了30%。它的市盈率为11倍，而过去5年的平均市盈率为17倍。然而，瑞银分析师杰伊·索尔（ JaySole ）预测，该指数将反弹至17倍。那是什么？投资者认为，该公司的 Coach 和 Kate Spade 品牌正在衰落，但 Sole 认为有迹象表明 Coach 正在企稳，并预测，随着时间的推移， Kate Spade 将成为一个20亿美元的品牌，高于现在的12亿美元。他预计未来五年每股收益将增长9%。
( REG )提醒。由于担心政策制定者将打击药品定价，生物技术行业受到重创。再生元（Regeneron）的收入中有60%来自美国销售的 Eyla ，用于某些视网膜疾病，而且
（ NVS ）计划在今年晚些时候引入竞争对手。如果成功，再生元（Regeneron）可能会被迫打折。
再生元（Regeneron）通过努力扩大 Eylia 的用途和交付方法，而开发另一种药物 Dupixent ，除了湿疹等炎症性疾病外，还包括哮喘。从长远来看，再生元（Regeneron）希望推动目前正在试验的癌症药物。人们普遍认为，除去利润和利润，每股收益在未来五年将以每年5%的速度增长。一些分析师认为，经济增长速度要快得多，而其他分析师则认为经济下滑。该股2015年曾一度突破600美元，最近以305美元的价格出售，尽管每股收益在这段时间里几乎翻了一番。这意味着股票的市盈率可以达到11倍——约为历史最低水平。
（ BWA ）——尤其是因为它在中国有销售业务。但如果你在寻找原因，这里有三个。首先，该公司有一个良好的产品组合，如涡轮增压器，可以增加动力的小内燃机，使汽车制造商提高效率，系统用于混合动力和电动汽车，预计将获得市场份额随着时间的推移。因此，尽管目前经济低迷，但未来五年，每股收益平均每年可能以高达个位数的速度增长。其次，该股的预期市盈率仅为8倍。
第三个原因是，最近的汽车衰退看起来很像典型的衰退期间发生的事情。为什么这是积极的？Baird Equity Research 分析师大卫•莱克( David Leeker )上周在给投资者的一份报告中写道：“汽车供应商的基本业绩好于我们认为，在下一轮‘真正的’衰退来临之际，许多投资者对该集团的预期。”事实上， Borg 的每股收益预计今年只会下降6%。如果这是艰难时期的样子，那么股价应该得到更高的估值。
（ AMAT ），但也为长期买家创造了机会。
该股的预期市盈率为12倍，低于近14倍的5年平均水平。预计在截至10月的财年中，苹果的每股收益将受到31%的冲击，但随后将开始复苏。市场预期很低，上周五股市下跌2.5%，此前 Applied 周四晚间发布了第二季度财报。该公司并未将芯片或显示器等终端市场称为底部，但 B.Riley 分析师克雷格·埃利斯( Craig Ellis )上周五写道，他认为这两个市场都有稳定的迹象。他将股票评级从中性上调为买入，目标股价为54美元，意味着上涨超过25%。