Finding Value In A High-Priced Market

Jun 11 2014, 4:52pm CDT | by

In many ways, it was difficult to be an investor in 2013 and not make money. With all the broad indexes making sharp advances, nearly everyone with exposure to equities saw their portfolio ramp up in value. Though the markets have continued their upward trajectory this year, the ride has been bumpier and far more unpredictable.

With valuations inflated, there has been a significant rotation out of growth stocks and into value. The extreme case exemplifying this trend is Twitter, which exploded after its IPO but is down close to 50% this year.

At the same time, a series of conflicting economic reports have muddled the picture for investors and make it difficult to determine the overall health and direction of the economy. Amid these gyrations, it has become increasingly difficult to pick winners. So what’s a viable option for investors attempting to find value in this high priced market?

Perhaps the best place to start is with mature companies on the brink of a rebound. Specifically, seek out firms that suffered through a series of negative headlines but which are nonetheless well positioned with enough critical mass and brand awareness in the marketplace to stage a comeback. The following three companies fit this description:

*Target – According to reports, as many as 110 million people had their personal and credit card and/or debit card data compromised as a result of Target’s security breach late last year. Making matters worse for the company, it was exposed just as the holiday shopping season was kicking into full gear. The breach not only cost Target’s CEO his job but it highlighted a number of other issues that are currently plaguing the company, including struggles within its online business as well as its poorly executed expansion effort into Canada – which thus far has resulted in losses of nearly $1 billion. Even so, Target remains the second largest retailer in the United States, behind only Walmart, selling everything from groceries to apparel to home furnishings. The company will find its way back, and when it does its current valuation could seem cheap given that it is now trading at half of yearly revenues, which, historically, is very low.

*General Motors – General Motors has issued more than two dozen automobile recalls this year affecting nearly 16 million cars. The most high profile of which stems from faulty ignition switches across multiple vehicle lines that have been related to the deaths of 13 people and prompted the firing and reorganization of numerous GM employees. But if there’s one company that has shown it can weather negative headlines, it’s GM. It has already returned to profitability following the government bailout during the financial crisis. This time around the obstacles are not nearly as steep. With about $27 billion cash on hand and the government having sold its remaining shares at the end of last year, the company is on sturdy ground. Meanwhile, it recently reinstituted its dividend, which at 3.30% is lofty in today’s environment. Given all this, GM is currently trading at a discount following a 10% decline in share price year-to-date.

*ADT – As America’s largest home security firm, ADT is an established company still trying to find its legs after spinning off from Tyco International in 2012. Tyco became a symbol of corporate greed and excess in the early 2000s after former chairman and CEO Dennis Kozlowski swindled millions from the company.

Earlier this year, ADT stock plummeted nearly 24% in three days following a disappointing earnings report. But reflected in those numbers were a series of investments ADT made into new digital product offerings that should help drive future growth. Spinoffs typically work. They sometimes just take time. With housing on the rebound nationwide and the fact that 92% of its revenues are recurring, ADT has a strong foundation on which to recover much of its lost value – and then some.

Investors still looking for upside opportunities within the equity markets need to own up to a potentially unpleasant fact: It could be a long time before the markets perform like they did last year.

If 2013 was a year that rewarded all types of investors in equities, then 2014 will ultimately favor those who are more savvy, selective and disciplined.

With that said, there is indeed value to be found in the equity markets, and it’s frequently in places that are not unfamiliar to the average consumer. But uncovering that value does require a little extra homework.

Ben Marks is president and chief investment officer of Marks Group Wealth Management, a Minneapolis investment advisory with approximately $550 million in assets under management.

 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

IPad Air Giveaway 2014 is Online
IPad Air Giveaway 2014 is Online
Our sister site I4U News is giving away a brand new iPad Air or if you can wait an iPad Air 2. This is an $499 value.
 
 
Your Parent Or Kid Moved In: Are You Covered?
A record 57 million Americans now live in multigenerational family households — double the number in 1980, according to a new Pew Research Center study. And I bet many of them have the wrong homeowner’s or renters...
 
 
Pandora Looks to Challenge Terrestrial Radio's Dominance in Cars
Pandora Media is one of the largest Internet radio providers in the U.S. with more than 75 million active users. While the company’s active user count has increased at a robust pace historically, it is likely to slow...
 
 
Are General Manager Salaries About To Skyrocket? Will There Be A Front Office Salary Cap?
Are General Manager Salaries About To Skyrocket? Will There Be A Front Office Salary Cap?
It’s January 2026. New York Yankees owner Hal Steinbrenner gets out of his driverless car and triumphantly marches before the gathered press to introduce his prized new free agent. It’s a record-breaking contract—over...
 
 
 

Latest from the Network

Orson Welles last film to be released
Orson Welles' final movie will finally be released next year. The acclaimed filmmaker had worked on 'The Other Side of the Wind' - which chronicles a temperamental film director battling with the Hollywood establishment...
Read more on Movie Balla
 
Game of Thrones stars get pay rise
'Games of Thrones' cast members will be paid $300,000 an episode. Five of the shows biggest stars - Peter Dinklage, Kit Harington, Lena Headey, Emilia Clarke and Nikolaj Coster-Waldau - have landed bumper payrises after...
Read more on Celebrity Balla
 
Mike Tyson: I was abused
Mike Tyson claims he was sexually abused as a child. The 48-year-old retired boxer was ''snatched'' off the street when he was seven by an ''old man'', who he never saw again after the shocking one-time incident....
Read more on Celebrity Balla
 
Amanda Bynes released from psychiatric facility
Amanda Bynes has been released from a psychiatric treatment facility. The 'Easy A' actress was spotted walking around Sunset Strip, West Hollywood, last night (30.10.14), 19 days after she was admitted to the hospital...
Read more on Celebrity Balla
 
Lindsay Lohan sued for 60m
Lindsay Lohan is being sued for over $60 million. A website developer has filed a case against the 'Mean Girls' actress and her brother Michael in which he accused them of stealing one of his ideas. According to Fima...
Read more on Celebrity Balla
 
Russell Brand to give money away
Russell Brand plans to give away his future earnings. The 39-year-old star insists he ''doesn't need'' to make money for himself anymore so wants to use his fortune to help those in need. He told Vanity Fair magazine...
Read more on Celebrity Balla
 
Koji Uerhara Signs 2-Year, $18M Deal With Boston Red Sox
Ace Japanese closer Koji Uehara signed a two-year deal with the Boston Red Sox on Oct. 30.According to MLB.com's Ian Browne, Uehara's deal is worth $18 million:"Perhaps it was fitting that the Red Sox announced a two-...
Read more on Sport Balla
 
Finnish scientists identify new type of black hole
Helsinki, Oct 31 (IANS) Finnish researchers have discovered a new type of low-mass black hole, which is a bright celestial body that emits X-ray, the University of Turku has said. Researchers at the Finnish university...
Read more on Business Balla
 
Union Carbide ex-chief Warren Anderson is dead
Washington, Oct 31 (IANS) Warren Anderson, former chief executive officer of the Union Carbide Corporation, is dead, a media report said Friday. He was 92. His death revived memories of the 1984 Bhopal gas tragedy. He...
Read more on Business Balla
 
Himalayan Viagra fuels gold rush for local Tibetans
Washington, Oct 31 (IANS) Overwhelmed by people trying to find the prized medicinal fungus known as Himalayan Viagra, two isolated Tibetan communities have managed to implement a successful system for the sustainable...
Read more on Business Balla