Value stocks are those that are relatively cheaper than what their valuations are. These stocks usually come with less risk because of the cheaper prices relative to their peer companies. They are the opposite of the top growth stocks that come with higher prices and multiples.
The advantages of investing in value stocks are the lower degrees of volatility that come with it. They also have a much lower risk reward ratio. They are usually blue chip companies that are crucial to the markets they operate in and are hence deemed less risky.
The disadvantage of investing in value stocks is that they usually do not outperform. Risk-reward ratio is low, and as the name suggests, investors will need to take the added risk in order to realise excess returns.
Traditional value stocks did not perform well in 2020. This was because the financial crisis caused by the pandemic showed flaws in their operating models. Capital intensive businesses that had high levels of debt were punished and sectors such as technology that usually contain growth stocks were rewarded. The best stocks of 2021 contain a mix of our picks for growth and value stocks.
The airline industry is one of the most damaged industries not just in Australia, but globally. This is due to the high operating costs that are associated with these firms. Qantas is the symbol of Australia and the same sentiment has resulted in the government bailing the airline out of the financial crisis.
This results in Qantas emerging out of the crisis with most of its competitors wiped out. The firm has also been under massive restructuring to decrease their costs and operate under a lighter load going forward. With domestic travel open and international travel due to begin sometime next year, Qatas will benefit from the lack of competitors. Qantas has been one of the best performers among ASX industrial stocks in the past few months and with the recent consolidation, the stock is once again trading at an attractive price with one major tailwind imminent as vaccine deployment begins – the reopening of international travel. This makes Qantas an ASX listed stock to keep a close eye on over the next few months.
Spark is in the business of electricity transmission and distribution in Australia by way of investing in firms that do just that. This means, SKI’s revenues are dependent on the performance of its portfolio companies in an industry that is highly regulated. Spark is part of the ASX100 index – the index that tracks the top 100 firms on the ASX by market capitalisation. The firm has suffered from a decrease in demand for electricity due to pandemic induced restrictions. However, has not utilised any financial assistance from the Government to offset any dips in performance during these unprecedented times. With a vaccine on the horizon and ANZ recovering well from the pandemic, the demand for electricity is set to rebound – adding tailwinds to the business.
The stable business came with a dividend of 7 cents per share in its most recent payout and it is a dividend stock to consider
The Sydney based healthcare company has a global footprint. They have over 480 facilities in 11 countries. Yeah, they are the big daddy of the healthcare industry. Since the Covid19 outbreak, Ramsay Health Care has served on the frontlines by setting up Covid19 response efforts by working with governments. RHC assisted local hospitals by supplying beds and ventilators to better manage the crisis. The reduction in non-essential surgeries has impacted the firm in the short-term, and it looks like investors have hence sold the stock. In the long-term though, healthcare firms do not come as diversified as Ramsay. The price now may be an opportunity for investors to add this huge healthcare stock to their portfolio.
Rural Funds Group is a Canberra based Trust, that owns agricultural real estate across Australia and leases them to counterparties. RFF generates its revenues through lease payments and appreciation of the market value of its assets over time. Hence, it is a real-estate fund manager. Its assets include diversified commodities such as orchards, cotton, vineyards, etc.
The global market for agricultural products has weathered the Covid19 storm. Commodity prices depend on supply and demand, and they have also relatively held their ground during this time. This has ensured that RFF’s portfolio of assets have performed relatively well during the crisis and hence, de-risks RFF. With over 60 well diversified properties in its portfolio, the agricultural fund manager is a good one to hold on to in your portfolio – both for dividends and growth in share price.
An investment portfolio should strike a balance between value and growth stocks in order to keep the risk-reward ratio balance. Our research material at Shares in Value can help you make an informed decision when picking stocks for your portfolio.