How to Find Value Stocks in the Current Market Scenario
Some market situations could make finding what you’re looking for really difficult. The present market scenario is an example for those looking for value. TradeZero Ocean Place Cable Beach, Unit #1 Nassau, Bahamas
Selecting the right options to match your portfolio goals in stock trading isn’t always simple or straight forward. It seems to be quite tough to find value stocks in the present market that appears quite tight, says experienced analyst Martin Tillier. There are reasons behind this.
Factors behind the Tightness of the Market Corporate profitability has been on the rise so far this earnings season. Economic improvements characterized much of last year as well. The stock prices have reached a point where you have the price to earnings ratios (P/E) soaring above the long term averages. Now this isn’t that bad when you have earnings continuing to display strength. However, this makes it harder to find individual stocks capable of outperforming the market.
Value Can Be Found in Underperforming Industries or Companies Tillier says this can be dealt with by finding stocks in underperforming companies. Or you could look for stocks in industries underperforming the market. Now when you think about it, you realize that there is usually a concrete reason for the underperformance. But the stock market does have a cyclical nature and it is highly likely that industries can recover, though the same can’t be said of individual companies being trounced by their rivals. Fundamental changes affecting an industry or sector can also be predicted more easily than those affecting individual stocks. It’s therefore important for value-seeking investors to decide which sector to look to in terms of recovery prospects.
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Tillier brings up the financials and energy sectors as prominent among the sluggish sectors. That makes them the right place to start. As a result of the high capital requirements combined with the low interest rates, the profitability of banks had been limited. However, these factors are changing gradually. The low prices of oil had kept the energy stocks subdued, but the prices are climbing gradually. Still, with the sector having experienced some false starts, there is some caution shown by the market.
The Energy Sector The energy sector itself has been restrained in its forecasts. Though oil prices are rising, energy companies mostly have a restrained perspective regarding the future. But this earnings season onwards, there have been indications of things about to change. And that leads Tillier to point to offshore drilling, which is an underperforming subsector within the underperforming energy sector. The businesses in this sector have improving fundamentals. The prize of WTI crude oil has been more than $60 per barrel for the whole of 2018. And it seems set to get stabilized in the high range. Offshore drilling also seems to be favored by the government. So that finally leads Tillier to zero in on Diamond Offshore ($DO) and Transocean ($RIG). These have been affected adversely by the downturn experienced in the offshore oil industry. However, they now experience positive free cash flow which gives them the power to pounce on opportunities. Though both these stocks are still risky options, in a tight market you have no other option to add value to boost your portfolio returns. These stocks certainly look promising, and the coming months should reveal that. www.tradezero.co
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