Barron\'s - 09.09.2019

(Kiana) #1

8 BARRON’S September 9, 2019


stretching back a decade.


“Itakecomfortinthedurationoftheun-


derperformanceandthatsofewpeopleare


true value investors anymore,” says Steve


Galbraith,aformerMorganStanleystrate-


gistandWiencolleaguewhonowheadsKin-


dred Capital Advisors in Norwalk, Conn.


“Thisremindsmeof2000,butthedifference


is there aren’t as many value advocates.”


Many value investors have left the busi-


ness, seen their asset bases wither, or


stretched the definition of value by buying


stockslike Netflix (NFLX)or Amazon.com


(AMZN).


Afterthe2000marketpeak,theS&P


tumbled more than 40% in the ensuing 2½


years. But some value managers showed


positivereturnsbecauseofthedeepunder-


valuation of value stocks.


“Our portfolio is littered with single-


digit P/E stocks and some have mid- to


high-singledigityields,”Galbraithsays.He


ticksoff LyondellBasellIndustries (LYB),


Goodyear Tire & Rubber (GT), CBS


(CBS), and Delta Air Lines (DAL). Both


GoodyearandLyondellyieldmorethan5%.


Investors can also play a revival in de-


pressedvaluestrategiesthrough Franklin


Resources (BEN).Itsshares,atabout$27,


tradefor11timesprojectedearningsinits


current fiscal year ending this month and


yieldnearly4%.Franklin’snetcashandin-


vestmentstotalmorethanhalfofitscurrent


marketvalueof$13.5billion—probablythe


highestpercentageforanycompanyinthe


S&P 500.


PzenaInvestmentManagement (PZN),


founded and headed by Rich Pzena, is a


small-cap play on a value-investing revival.


Its shares, at about $8, trade for about 12


timesannualizedearningsinthefirsthalfof



  1. (There are no published estimates for


thecompany.)Pzena’strailingdividendyield,


includinganannualspecialpayout,is7%.De-


spitevalueinvesting’swoes,Pzenahasexpe-


rienced net inflows in the past year.


Up & Down Wall Street continued


Hiswarninghasprovedprescient.Euro-


pean economies have stagnated, interest


rates have plunged to zero—or lower—and


stockmarketshavebadlylaggedbehindthe


S&P 500 in the past five and 10 years.


“What I meant was that Europe would


remain a great place to visit, eat, and ab-


sorbtheculture,butnotnecessarilyagreat


place to invest,” Wien said this past week.


The issue now is whether European


stocksareappealing.The VanguardFTSE


Europe ETF(VGK)hasreturnedjust1.7%


annually in the past five years, nine per-


centage points behind the S&P 500.


Europeanstockshavebeenhamperedby


the lack of a dynamic tech sector and a


largeweightinginbanks(whichhavebadly


trailedtheirU.S.peers),energy(oneofthe


globalmarkets’worstsectors),andeconomi-


cally sensitive stocks like autos.


PartofthebullcaseforEuropeanstocks


isthatyield-starvedEuropeaninvestorswill


gravitatetoequities,giventhatgovernment


bond yields are low or negative, with the


German 10-year Bund at -0.6%.


The stock-bond yield gap in Europe is


about four percentage points, against less


thanahalf-percentagepointintheU.S.Euro-


peanstockstradefor14timesprojected


earnings, a discount to the S&P 500 at 18


times.AndEuropeancompaniesgreatlyfavor


dividendsoverstockbuybacks.Theresultis


dividendyieldsaveragingcloseto4%.Forin-


come-seekingU.S.investors,Europebeckons.


Among European stocks, Royal Dutch


Shell (RDSB) and BP (BP) yield over 6%.


Top bank HSBC Holdings (HSBC) yields


5.4% and UBS (UBS), 6%; Daimler


(DDAIF)and BMW (BMW.Germany)yield


over5%.TheVanguardFTSEEuropeyields


3.4%.


Value stocks started to stir last week,


besting their growth counterparts and


cheering embattled value investors after a


long, brutal period of underperformance


Country 10-Year Govt. Bond Yield Stock-Market Dividend


U.S. 1.56% 1.92%


Germany -0.60 3.


U.K. 0.59 5.


Region ETF / Ticker 5-Yr Annualized Return


U.S. SPDR S&P 500 / SPY 10.3%


Europe Vanguard FTSE Europe / VGK 1.


European dividends exceed bond yields as stock markets lag.


Data as of 9/5 Source: Bloomberg


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