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Stocktake: Loading up on value stocks

Irish banks among those tipped to benefit along with energy stocks

Value stocks have long been unloved but as growth stocks plunge, this could finally be value’s year. Photograph: iStock

Proinsias O'Mahony's face
Proinsias O'Mahony
Mon Jan 31 2022 - 00:00

A near-record number of fund managers predict value stocks will continue outperforming their growth counterparts, according to Bank of America’s latest fund manager survey.

Also in the value camp are Neil Osborne and Ronan O'Houlihan of Dublin-based Santiago Investment Advisors, whose latest note offers suggestions for investors looking to assemble a global value portfolio.

Energy stocks to outperform technology is one of their “strongest views” for 2022, with European energy stocks trading on just 5.9 times forecasted earnings compared to a long-term average of 14.

Irish banks are another pick, given they trade at about 0.5 times their tangible book values whereas their European peers trade at a multiple of 0.8.

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So are unloved UK dividend stocks as well as Japanese value shares, which look “very attractive” and are priced to deliver annual returns of 8 per cent over the next decade.

Chinese technology shares, slaughtered in 2021 due to a regulatory crackdown, are also favoured.

These kind of companies have been unloved in recent years, but they’re cheap. In contrast, US stocks look overvalued and are expected to underperform European equities by 4-5 per cent annually over the medium term.

“While long-suffering value investors will be wary of calling the growth rally over, we believe it is,” say Osborne and O’Houlihan. Their take: the next decade belongs to value.

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