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

Hamilton admits hardly sleeping the night before
Abu Dhabi, Nov 24 (IANS/CMC) Newly crowned Formula 1 World champion Lewis Hamilton has revealed he hardly slept the night before the season-ending Abu Dhabi Grand Prix which he eventually won to clinch his second...
Read more on Sport Balla
 
Real Madrid to play in Australian tournament
Melbourne, Nov 24 (IANS) Real Madrid, which boasts the most expensive squad in world football, have been announced as one of three teams to compete in the International Champions Cup in Melbourne in July. The...
Read more on Sport Balla
 
Cruzeiro win Brazil Serie A title
Belo Horizonte (Brazil), Nov 24 (IANS) Cruzeiro have clinched their second consecutive Brazilian Serie A title with a 2-1 victory over Goias. Everton Ribeiro struck the winner at the Mineirao stadium Sunday after...
Read more on Sport Balla
 
Honours shared in Milan derby
Rome, Nov 24 (IANS) Inter Milan have played out a 1-1 draw against crosstown rivals AC Milan in a sellout Serie A game. Jeremy Menez gave AC Milan a lead at halftime but Joel Obi equalised for Inter shortly after the...
Read more on Sport Balla
 
IOC chief condemns Afghan bombing
Lausanne, Nov 24 (IANS) International Olympic Committee President Thomas Bach condemned the suicide bombing at a volleyball tournament in Afghanistan. The lone bomber detonated explosives Sunday during a local...
Read more on Sport Balla
 
Marseille tops French league
Paris, Nov 24 (IANS) Marseille have climbed to the top of the French league after rallying to beat Bordeaux 3-1. With the victory, they now enjoy a one-point lead over Paris Saint-Germain. Bordeaux striker Thomas...
Read more on Sport Balla
 
New crew aboard Russian spaceship reach ISS
Washington, Nov 24 (IANS) Three new crew members from the US, Russia and Italy arrived Monday at the International Space Station (ISS) on board a Russian spaceship. Terry Virts of NASA, Soyuz Commander Anton...
Read more on Business Balla
 
Sears plans for big Black Friday 2014
Sears is looking foward to cashing in big time for the upcoming Black Friday 2014 shopping holiday on Novermber 28th. Members of Sears have seen their Black Friday specials start one week early and the company has...
Read more on Black Friday Countdown
 
Apple gears up for Black Friday
Black Friday is fast approaching and one company that plans on seeing a sales increase is Apple. Apple has announced that they will have discounted prices for the upcoming buying holiday and one product they plan on...
Read more on Black Friday Countdown
 
Thousands protest in Chile in favour of new constitution
Santiago, Nov 24 (IANS/EFE) Several thousand people took to the streets of Santiago and other Chilean cities to demand a Constitutional Assembly as a means to provide the country with a new constitution, as was...
Read more on Politics Balla