People planning to invest in value stock should note that value stocks can significantly underperform during bull phases – when value stocks go out of favour.
value stocks are run with a clear importance on the tenets of value investing. The essence is on identifying stocks that are presently priced at a discount to their basic value— or at a price that is not reflective of their true worth. By purchasing a stock at a high side of safety, the risk is lessened to some extent while enhancing the return potential. Value stock is a popularstock that adopts this strategy. Value stock does not have growth bias, this means thatinvestors does not necessarily lookfor stocks with healthy earnings growth visibility, but pay more emphasis on the stock price. Although, value stock carries higher risk sometimes. Value stocks presents a better risk-reward proposition, especiallyin anintense market environment.
Value stock strategy has performed well recently and continues to hold potential. Research has shown thatvalue stocks are well placed to unearth good opportunities and protect the downside at a time when valuations are steep. Investing in valuestocksfollows a value-based approach would be a better option now given the sharp run-up in valuations. Hence, if an investor is looking for mid-cap exposure at this point, having a value stockwith a value bias may him/her curb the downside risk to some extent.
Prospective investors must understand that value stock can significantly underperform during bull phases, when value stocks go out of favour. Nevertheless, these tend to offer a healthy returnin the long-run by outperforming during a downturn or a range-bound market. Value stocks are good if you have a long-term horizon. It can take a lot of time for the underlying value to unlock, during which these funds can underperform.
Experts maintain that the benefits of a value stock lie in its use as a tool for diversification as a value stock can be added to complement othertypes of funds in the investor’s portfolio.
All these statements points to the facts that value stock is a sure bet to invest in.