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Value-Style Investing
Value-style investing focuses on companies that have been ignored or overlooked by the markets. Both value- and growth-oriented investments can be important components of a diversified portfolio.
What do value-style managers look for?
Bargains. Generally, value-style managers look to buy companies that are trading below their intrinsic value, but whose true worth they believe will eventually be recognized. These securities typically have low prices relative to earnings or book value, and often have a higher dividend yield.
Overlooked opportunities. Value managers search for opportunities that have been overlooked by the market, perhaps because an industry is out of favor. Additional opportunities may arise if a stock is temporarily depressed due to market overreaction or a missed earnings target.
Benefits of a value strategy
Lower volatility. Since value stocks sell at a discount, they generally experience less volatility than growth stocks and could potentially offer stronger performance during slower-growth environments.
Diversification. Value stocks and their counterpart, growth stocks, don't usually move in tandem. By combining both value- and growth-oriented investments, you can better diversify your overall portfolio.
How risky are value stocks?
Just because a stock is cheap, doesn't mean it's a good value. A value stock may remain undervalued by the market for a long period of time. For example, investors may fail to recognize the company's value and bid up the price as expected, or the outlook for a company may deteriorate.
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