Why value stocks are rising
Last week was a bad week for technology stocks and the market in general, but it was a pretty good week for value stocks. The market has been surging for nearly a year and a half, pushing growth and technology stocks higher in value along the way.
The S&P 500’s price-to-earnings ratio has risen to more than 22x from 18x a year ago, and the 10-year inflation-adjusted Shiller P/E ratio is up to 33x, which is higher than average. It’s overrated.
This can create opportunities for value stocks, as we saw last week. In fact, the best-performing stocks in the S&P 500 last week were value stocks. united airlines (NASDAQ:UAL), globe life (NYSE:GL) and paramount global (NASDAQ:PARA).
A good week for United
The Shiller P/E ratio was much higher in March at 34, still above the average of 33. This is clear considering that the historical average for Shiller’s P/E ratio is 17. 33 is high. 17 has averaged in the mid-20s since the dot-com bubble burst in 1999, although it is somewhat skewed by lower rates over the past century. For perspective, Shiller P/E ratio was 28 in April 2023, and it was 38 in April 2023. October 2021 — Just before the tech bubble burst.
Investors should look at valuations right now. This is especially true for stocks like NVIDIA, which have been on fire for over a year. NVIDIA has enormous earnings power, but it currently trades at around 64 times earnings, which is on the high side. For perspective, the average P/E for the Nasdaq 100 is currently around 30.
Investors found good value last week, including: united airlines, which is up about 27% over the past week to about $52 per share. United Airlines reported solid first quarter results that beat expectations.
United reported a 10% increase in revenue for the quarter to $12.5 billion, while its net loss was less than expected at $124 million. The company also provided higher-than-expected second quarter and full-year performance guidance.
United expects adjusted EPS of $3.75 to $4.25 per share for the second quarter and $9 to $11 per share for the full year, beating analyst estimates. It also reduced capital spending for fiscal 2024 from $9 billion to $6.5 billion. This is partly due to a reduction in aircraft deliveries to 61 from a previous estimate of 101. This is due to expected manufacturing delays from Boeing.
United are incredibly cheap, as they trade for just six times earnings.
Globe Life and Paramount also rise
The second best performers last week were insurance companies. globe life, which resulted in a profit of 25%. The catalyst for Globe Life appears to have been a statement refuting claims made by short seller Fuzzy Panda Research. The company raised concerns about Globe Life’s business, leadership and legal issues.
Globe Life executives responded to the short-seller’s claims, saying, “The mix of anonymous claims and recycled points pushed by the plaintiff’s law firm to force Globe Life to settle is highly misleading. We look forward to further addressing these claims in the near future.” “I plan to completely refute it,” he said.
Globe Life is scheduled to report its first quarter results after the market closes today, so check back then for more details on this matter, earnings, and outlook. Globe Life is also trading at 6x earnings.
The third best stocks last week were: paramount global, rose 12.5%. Paramount is very cheap, with a price-to-book ratio of 0.36 and a price-to-earnings-to-growth ratio of 0.25.
But the catalyst for Paramount were reports that Apollo Global Management and Sony Pictures were in talks to make a joint offer to acquire Paramount. Paramount is currently in merger talks with Skydance Media, so considering the price surge in the news, investors appear to be favoring an Apollo/Sony bid.
Investors should treat struggling Paramount stock cautiously given the uncertainty surrounding its future.
disclaimer: All investments involve risk. Under no circumstances should this article be taken as investment advice or constitute liability for investment profits or losses. The information in this report should not be relied upon for investment decisions. All investors should conduct their own due diligence and consult their own investment advisors when making trading decisions.
