Tag: investment ideas

Value Investing & Growth Investing – What Are They?

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Stock trading or investment is one of the most sought investment options for many investors. It does require some evaluation and lots of patience. Stock trading is not just about buying and selling stocks of different companies. However, it’s more about reading those companies, and there are two standard approaches – Value Investing and Growth Investing. There’s no need to panic if you have heard about them for the first time because our expert is here to help you out.

Our expert is none other than Malik Mullino, CEO of Jadeite Assets LLC and a retired-marine who’s been helping people for a long time.

According to Malik Mullino, ” value and growth investments are two fundamental approaches to stock investments “. Both have their perks and downs, but both seek to maximize the investment value to investors.”

To explain in it simple words, in value investing, investors go with undervalued stocks. In contrast, in growth investing, investors buy stocks of companies with the potential to outperform the market at the time.

Here’s a better breakdown of Value and Growth Investment to help you understand them in a better way.

Value Investment 

In the value investment approach, investors lookout for the companies which have fallen but still have strong fundamentals. These are the well established and big corporations, which have been trading below their worth.

There could be several reasons for a stock being undervalued. Public perceptions of these corporations matter a lot, which hinders the prices; chances could be that company or its central personnel could be caught in some scandal or some unethical practice. But at the same time, the company’s financials are still as strong it was, and that is why value investors opt for such stocks because the company’s finances will hold up, and after a while, the public will forget about these scandals, and the price will rise to where it should have been.

Consider a company X with a stock price of $20 a share, based on the number of shares outstanding divided by its capitalization. But, right now, it’s trading for $10 a share, which is quite a good deal considering that stocks’ price will be up after a while.

Here are some of the critical characteristics of the growth funds

  • Priced lower than the overall market: The idea behind value investing is that good companies’ stocks will bounce back in time if other investors recognize the actual value.
  • Priced below similar companies in the industry: Many value investors believe that most stocks are undervalued due to investors’ overreaction to recent company problems, such as low earnings, negative publicity, or it could be some legal issues, which might not matter in the long run.
  • Carry somewhat less risk than the market: There’s one good thing that these stocks take time to turn around so that value stocks may be more suited to longer-term investors.

Growth Investment

In the growth investment approach, the companies have registered more gains which have caught investors’ eyes since it is expected to continue with such a trend.

But what’s the reason behind such a good performance. Well, the gains might be unexpectedly high due to the company’s recent performance, or some of its product performing well enough in the market with a promise of ’emergence’ over the years.

Consider a company that’s been trading for $30 a share while its competitors are still at $18 a share and the price of stocks of the first company is rising steadily, then it will be considered as a growth stock or company.

Growth stocks can be found in small, mid or large-cap sectors as long as analysts conclude that they have achieved their potential.

Now, what’s the reason behind investors feeling confident about growth stock’s future. The main reason could be a company working on a product expected to excel in the coming years or minting more money than its competitors.

  • Higher priced than the market. Investors are willing to pay a high price with the expectation of selling them at even higher prices as the companies continue to grow over the years.
  • High earnings growth records: Growth companies potentially continue to achieve high earning regardless of economic conditions even if its not suitable for the market.
  • More volatile than the market. There’s a risk in buying a growth stock as its price could fall sharply any day, mainly if earnings don’t go well with big traders.

Well, there’s one more category, a blend of both; a stock can also be undervalued while performing better than the market standards at the same time.

Value Investing and Growth Investing – Which Is Better?

On comparing the historical trends, value stocks are considered to have a lower level of risk, atleast theoretically, since they are well established, and big-time corporations whose fate will turn around sometime in future, and investing in value stocks might not result in a capital loss since these stocks also pay dividends.

Meanwhile, growth stocks don’t offer dividends and reinvest the earnings back into the company. The probability of growth stocks going down is more than the value stocks if the company is unable to keep up with the market’s growth expectations. So overall, growth stocks come with the biggest reward and risk at the same time.

Some people opt for both value and growth stocks when investing for the long term since the risk will be reduced, and gains could be multiplied depending on how the market fares out in future. This approach enables investors to profit from the economic cycles, whether it’s beneficial for the value or growth stock.

As Malik Mullino says, the decision to invest is a personal choice. The same person can only decide whether to invest in growth or value stocks. It depends on their risk tolerance and investment goals. But it is essential to study the market and to evaluate the company before proceeding with the investment.

At last, it’s all about you. It’s only you who can decide where to put your money, but if you need help, you can reach out to our CEO Malik Mullino for any suggestions.

 

Source: Value Investing and Growth Investing – What Are They? – satPRnews

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Why Your Index Fund Is Built To Survive The Coronavirus Outbreak

With The market already down more than 10%, the coronavirus-triggered plunge may turn into one of the fastest bear markets to hit U.S. stocks ever. But, believe it or not, a passive investment in the S&P 500 may be the best way to ride out and ultimately profit from the storm.

As coronavirus spreads, the problems at these companies will worsen and cyclical sectors that track closely with global gross domestic product growth will also suffer. This morning, the industrial and materials sectors went into the red, posting negative returns for the past 12 months. They joined energy, down 30% over the year, as the only sectors to lose money. The S&P 500 is still ahead 7% year-over-year.

Here’s the good news: Your index fund already predicted all of this.

Even before the coronavirus became a global crisis, the S&P 500 was under-weighted in the types of stocks that were most vulnerable to the outbreak and it was heavily over-weighted in the software, internet, online retail and social media companies that are likely to either weather the storm, or thrive.

The Coronavirus Plunge

Coronavirus caused the quickest 10% market correction since the 2008 financial crisis.

                           

Almost a quarter of the S&P 500 index is comprised of the ten biggest companies in America by market capitalization: Microsoft, Apple, Amazon, Facebook, Berkshire Hathaway, Alphabet (Google), JPMorgan Chase, Johnson & Johnson, Visa and Wal-Mart.

These companies have pristine balance sheets and strong long-term growth prospects to manage through the outbreak. Some may also see increased sales as people stockpile food and health safety products, or benefit from people staying at home. About half of the overall S&P 500 is in information technology, healthcare and communications stocks —all unlikely to see major long-term disruptions due to the outbreak.

On the other hand, the types of businesses that are in free-fall, such as energy and retail, hardly make a dent as a weighting in the S&P 500. For instance, the entire energy sector entered 2020 at about the same weight as Apple alone. Thus energy’s 20% plunge over the past month is causing relatively minor pain. Retailers like Macy’s, Gap and Nordstrom that may struggle further are also minor weightings, in addition to small-sized drillers like Cimarex Energy, Helmerich & Payne, Cabot Oil & Gas and Devon Energy.

While holders of the S&P have sidestepped the worst stock implosions since the outbreak, they’re also big holders of potential beneficiaries.

Johnson & Johnson, United Health Group and Procter & Gamble are about 1% index weightings and they could see an uptick in sales as people all the world prepare for the virus’s spread. If more people begin to work from home, companies like Microsoft will benefit as demand spikes for its suite of cloud products including email and remote working services. Wireless carriers like Verizon and cell tower giants SBA Communications and American Tower will benefit from rising smartphone and internet activity.

Any surge in online sales will help ecommerce companies like Amazon and logistics warehouse operator Prologis as well as another S&P 500 member Equinix, one of the largest data center real estate investment trusts. Streaming services like Netflix and internet giants like Google and Facebook will also see a boost in eyeballs from masses of homebound Americans.

You guessed it. Each of these companies has high weightings in the S&P 500.

Your Index Fund Picks Winners

The biggest weights in the S&P 500 are also the largest and most successful companies in America.

                        

The index is well-prepared for the coronavirus because it is designed to track changes in the economy, which may actually be accelerated by the outbreak. The S&P 500 weights companies by market capitalization, meaning it increases exposure to companies with improving business prospects and rising stock prices, and it decreases exposures to those with worsening fates.

Already, people have been avoiding department stores and brick and mortar retailers, and driving more efficient vehicles, cutting back on oil and gas consumption. Movie theaters are being made obsolete by streaming media services. By design, the S&P has done a near-perfect job keeping up with these changing economic trends and consumer habits.

Investors, meanwhile, have spent the past decade bidding up the stock values of cash-generating software and internet companies, and have been abandoning stocks in companies with heavy debts and large pension obligations, or those exposed to economic cycles. Here again, the S&P 500’s algorithm has been trimming holdings in burdensome industrial companies and auto manufacturers. Information technology, the most heavily weighted in the index has fallen about 5% over the past month, but is still up 23%-plus over the past year.

In 2007, at the outset of the financial crisis, Berkshire Hathaway’s Warren Buffett famously predicted an ordinary investor in an S&P 500 index fund would beat just about any hedge fund on Wall Street. Buffett offered a $1 million bet—payable to charity—to anyone who thought they could pick hedge funds that would beat the index over the ensuing decade.

A hedge fund investor named Ted Seides took up Buffett’s wager. It wasn’t even close. Seides conceded a loss in 2015, waving a white flag of defeat before the decade was over. The S&P returned 8.5% annually over that ten-year stretch, while the average hedge fund failed to deliver half that return.

The reality is as follows: Market corrections like the current one are frightening. But sometimes, the smartest play is also the easiest. With an investment in the S&P 500, the house is on your side.

Follow me on Twitter. Send me a secure tip.

Antoine Gara

I’m a staff writer at Forbes, where I cover finance and investing. My beat includes hedge funds, private equity, fintech, mutual funds, M&A and banks. I’m a graduate of Middlebury College and the Columbia University Graduate School of Journalism, and I’ve worked at TheStreet and Businessweek. Before becoming a financial scribe, I was a part of the fateful 2008 analyst class at Lehman Brothers. Email thoughts and tips to agara@forbes.com. Follow me on Twitter at @antoinegara

Source: Why Your Index Fund Is Built To Survive The Coronavirus Outbreak

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Top 10 Investment Themes For 2020

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As you may recall, my overall theme for 2019 was “slowing but growing” and while this will likely become “slower but still growing” in the new year, I believe that 2020 will be “The Year of the 3 Big E’s” – earnings, the economy and the election, given the interconnected nature of these three factors. In this regard, below are my top ten investment themes for 2020.

1. Positioning For A Year With Two Distinct Halves: I believe that a dovish Federal Reserve, along with the continued strength of the U.S. consumer and underlying U.S. economy, will allow for additional upside potential for U.S. stocks during the first half of 2020. However, as we begin the second half of the new year and enter the thick of the election cycle, periods of intermittent volatility and overall investor apathy, will be likely based on changing predictions of who may, or may not, be in the Oval Office and which political party may, or may not, be in control of Congress after November 15. As a result, having a strategy positioned for this “Tale of Two Cities” outlook that provides exposure to dividend-paying U.S. equities with some element of downside protection may be worthy of consideration.

2. Demand For Tax-Free Income Remains High: As the yield curve remains challenged and changes to the current cap in place for state and local tax (SALT) deductions unlikely, demand for attractive sources of tax-free income will remain high in 2020. This demand will likely be highest among residents impacted most by the SALT cap in states such as New York, New Jersey and California. For those who are not aware, the SALT deduction is related to the Tax Cut and Jobs Act (TCJA) of 2017, which limited the total SALT deduction to $10,000. Demand for tax-free income overall was high in 2019 as well as evidenced by the 47 consecutive weeks of positive net inflows to U.S. municipal bond funds.

3. Biotech M&A Activity Likely To Continue: Biotech is on the mindsets of many investors heading into 2020 as M&A announcements were in the headlines throughout 2019. According to the Chimera Research Group, there were 28 biotech mergers & acquisitions announcements in 2019, including the recent announcement of Novartis’ planned acquisition of The Medicines Company. Margin compression, threats of drug price control and patent expirations, will challenge large pharmaceutical companies in the new year to find revenue replacement alternatives. One of these alternatives in 2020 will likely involve the acquisition of smaller capitalized biotech companies with innovative drugs nearing the final stages of FDA approval.

4. Preferreds Continue To Become A Preferred Source Of Income: Dependable distributions are important for income-oriented investors and preferred securities can help provide such distributions. Preferred securities, also commonly referred to as preferred stocks, represent a hybrid security type combining different features of both equities and debt. While most issuers of preferreds are banks, there are also other issuer types, including insurance companies, utilities, REITs, industrials and diversified financial services.

As a result, investors may want to continue using preferred securities as they did in 2019, while also considering the use of portfolios of preferred securities incorporating different types of issuers to help meet their income needs in 2020.

5. ESG-Based Strategies Gain More Prominence: Sustainable, responsible and impact investing is an investment theme growing in popularity across the globe. Strategies associated with this theme, which often incorporate environmental, social and governance (ESG) rating criteria, along with the investment merits of a given company’s stock, continue to attract more investment assets. According to the Forum for Sustainable and Responsible Investment, global assets under management in the strategy grew to $11.6 trillion in 2018 from $178 billion in 2005–a 6,417% increase! I anticipate the continuation of this trend in 2020, provided that the investment performance of these strategies remains strong on a relative basis.

6. Finding Value In Dividends: Dividends have long been a critical part of the total return investment equation for investors in common stocks. I tend to view companies that make regular dividend distributions and have a consistent track record of growing distributions over time in a more favorable light. In other words, I view such companies as possessing a higher degree of financial health. Moreover, stocks that pay dividends also tend to have characteristics favored by value over growth investment approaches. If the yield curve remains challenged in 2020 and stock market volatility returns during the second half of the year, look for consistent dividend payers and value-oriented investment strategies, which have taken a back seat to growth-oriented investment strategies over the last decade, to outperform.

7. International Equities Attract Investment Flows: Though many uncertainties remain for international economies and international markets in 2020, including Brexit (which now appears likely) and further trade agreement negotiations, the outlook for global economic growth has improved with J.P. Morgan forecasting 2020 global GDP growth of 2.5% vs. a 1.7% GDP growth forecast for the U.S. I anticipate emerging markets outperforming developed markets internationally in 2020, provided that Phase 2 trade talks between the U.S. and China do not take a wrong turn towards a new round of tariffs.

8. Strong Consumer Fuels Further Growth In E-Commerce: Evidence of the strength of the U.S. consumer can be found in sales data from the 2019 holiday shopping season. According to a CNBC article entitled, Record online sales give U.S. holiday shopping season a boost, overall holiday retail sales, excluding autos, increased by 3.4% when compared to 2018 with online sales leading the charge.

E-commerce sales made up 15% of total retail sales and rose 19% versus the prior year to a new record high according to MasterCard’s retail sales data from November 1–December 24, 2019. I anticipate further online commerce growth in 2020, which should benefit not only e-commerce companies but also companies that derive a significant amount of revenues from activities performed within the e-commerce ecosystem.

9. AI Implementations Increase Across Multiple Industries: Applications of artificial intelligence (AI) will continue to take place in 2020 across multiple industries ranging from finance to health care to automobiles, disrupting how many companies operate and, in certain cases, transforming the bottom lines of these companies. Also referred to as machine or deep learning, AI is typically associated with companies whose technologies are focused on the automation of cognitive processes such as speech recognition, deep learning and visual navigation. Another innovative technology that should also experience implementation growth in 2020 is cybersecurity, thanks in part to new regulations as well as the heightened risks of malware attacks, data breaches and hacking in general.

10. Counterbalancing Consensus With Contrarians: Whenever there is an overwhelming one-sided sentiment, whether positive or negative, among investors, and assets are flowing in the direction of that one-sided sentiment, it may be time to consider adopting some form of a contrarian approach. The same can be said for less favorable analyst consensus opinions on the stocks of certain companies that may otherwise appear healthy and positioned to grow. Coming off a year where seemingly everything worked, it may be worthwhile to consider investing in a stock portfolio of attractive companies that did not work in 2019 or that analyst consensus suggests will not work in 2020, despite strong fundamentals.

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Disclosure: Hennion & Walsh Asset Management currently has allocations within its managed money program and Hennion & Walsh currently has allocations within certain SmartTrust UITs consistent with several of the portfolio management ideas for consideration cited above.

Kevin Mahn Kevin Mahn

Kevin D. Mahn is the President and Chief Investment Officer of Hennion & Walsh Asset Management. Mr. Mahn is responsible for all of the Wealth and Asset Management products and services offered at the Firm including the SmartTrust® series of Unit Investment Trusts (UITs). Mr. Mahn also was the Portfolio Manager of the family of SmartGrowth® Mutual Funds. These mutual funds were target-risk oriented “mutual funds of ETFs” designed to track the Lipper Optimal Indices. Mr. Mahn is the author of the quarterly “ETF and CEF Insights” and “Market Outlook” newsletters as well as a co-author of the book, Exchange Traded Funds: Conceptual and Practical Investment Approaches, © 2009 Riskbooks. Mr. Mahn is a member of the Forbes Investor team and a frequent contributor to the Forbes Intelligent Investing blog and the Seeking Alpha website…..

Source: Top 10 Investment Themes For 2020

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