I definitely consider myself to be a value investor. I shun
growth stocks and instead zero-in on those with decent yields, low
amounts of debt, and reasonable key ratios such as
Price-to-Earnings, Price-to-Book, and Price-to-Cash Flow.
My investing screens rarely allow for stocks that have PEs above
20, those with high debt, or upstart firms that aren't currently
profitable. Of course there are some exceptions to this rule with a
small portion of my portfolio, far and wide my investment lineup
consists of 'boring' stocks like
EXC
and
PM
to name a few.
Yet, deep down I know that I am certainly missing out on high
flyers with this strategy. Although I definitely like
Amazon (
AMZN
)
and have thought about
Chipotle (
CMG
)
in years past, I simply cannot justify paying for the growth that
is supposedly baked into these securities.
Currently, the forward PE that we are showing on Zacks.com for
AMZN is over 370. Despite the many growth avenues that are open to
the firm-in the form of increased international expansion and more
media sales via the Kindle and Kindle Fire-I cannot rationalize
buying up shares in a $110 billion company that has such an absurd
forward price-to-earnings ratio (read
Try Value Investing with These Large Cap ETFs
).
Meanwhile, in the case of EXC, although it doesn't have-if we
are going to be honest-any real growth prospects, its reasonable PE
and a yield over 5.75% make it too enticing to pass up, at least to
me. Furthermore, the safety of the utility structure is also very
appealing, unlike the riskiness of Amazon and its fight to not only
be a retail king, but a force in the tablet market as well.
As you can tell from the paragraphs above, I am very biased in
my investing strategy towards value, but I have also seen a similar
trend among more 'growth' oriented investors as well. I know of at
least a few people who shun any stock that pays a dividend, or
those who demand an outsized growth rate in order to even consider
investing in a stock, suggesting that the trend goes both ways (see
Three Best Performing Small Cap Growth ETFs
).
Perhaps, value investors are just hard-wired to avoid growth,
and those who dabble in riskier stocks are unable to bring
themselves to purchase the more mundane companies?
At first I thought this might be a bad thing as it eliminates a
huge chunk of the investing landscape, but now I am wondering if,
instead, it allows investors to focus in on whatever they believe
works and forgo trying to develop dual strategies, which seems
likely to result a subpar mixture of the two distinct styles.
Personally, I cannot think of anyone that has a true 'blend'
investing style-and does it effectively-but what about you?
Do you also find yourself stuck in a particular investment style
or have you developed any effective strategies for opening up your
portfolio to growth if you are a value investor (or vice versa if
you are growth investor)?
Let us know what you think in the comments below!
Disclosure: Long PM and EXC
AMAZON.COM INC (AMZN): Free Stock Analysis
Report
CHIPOTLE MEXICN (CMG): Free Stock Analysis
Report
EXELON CORP (EXC): Free Stock Analysis Report
PHILIP MORRIS (PM): Free Stock Analysis Report
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