Stockopedia: 10 value stocks on the move

Growth investing has outperformed value investing for more than 10 years, but is all that about to change?

News of a promising Covid-19 vaccine has been a much-needed, dare I say it, shot in the arm for humankind this week. The prospect that science really might find some answers over the medium term is the kind of news we’ve been waiting for literally all year.

In the context of the stock market, the prospect of a vaccine was always likely to cause volatility in places that have already seen big shifts this year. 

Take, for instance, some of the small- and micro-cap biotech and medical shares that have soared in the wake of the crisis. Among them have been names like Synairgen (LSE:SNG), Omega Diagnostics (LSE:ODX) and Novacyt (LSE:NCYT), many of which specialise in Covid testing.

A possible vaccine probably has not removed the need for better testing at higher volumes. But all the same, this week’s news and the associated volatility in those shares (several of them sold off sharply) was a reminder of just how sensitive and emotionally-charged the market is. 

Blistering price gains have unwound quickly in places, and it takes steely calm to keep an emotional distance from all that.

• Stockopedia: 10 FTSE 350 stocks where dividends are bouncing back
• Stockopedia: 10 beaten up large-caps showing signs of recovery
• 10 UK large-caps the market loves right now

Another consequence of the vaccine news was that there was an immediate fillip for some travel, hospitality and other cyclical stocks. 

These sectors have been deeply out of favour this year. But upbeat news saw rises in shares from Jet2 (LSE:JET2) and easyJet (LSE:EZJ) to Wetherspoons (LSE:JDW), Marston’s (LSE:MARS) and even housebuilders like Persimmon (LSE:PSN) and Barratt Developments (LSE:BDEV). 

Some stocks in these sectors are set to swing to chilling losses in the year ahead, meaning that it can be hard to value them accurately. But there’s a case to think - with better news on the horizon - that valuations in some places are improving.

And that brings us to a third observation as the market starts to consider the possibility that normality might not be far away. 

Growth strategies have persistently outperformed value strategies for more than a decade, to the point that some value managers are starting to wonder whether they’ll ever prosper again. 

• Ten ‘magic formula’ stocks for investors looking for value and quality
• Take control of your retirement planning with our award-winning, low-cost Self-Invested Personal Pension (SIPP)

But value strategies - as tracked by Stockopedia - are showing some encouraging signs. We’re seeing this in the re-rating of a few stocks that have long-languished in bargain-basement territory. Count among them names like Smiths News (LSE:SNWS) and Reach (LSE:RCH).

With this in mind, we picked up one the more adventurous guru-inspired strategies this week, built around the approach of academic-turned-money manager, Josef Lakonishook. 

It is a strategy that blends value and momentum with the intention of finding cheap shares that the market is just starting to notice. A combination of low price-to-earnings (PE) ratios and improving relative price strength in stocks that are beating expectations are markers for ‘value on the move’. 

The strategy sold off sharply in March, but it has gone on to return 13.6% over the past six months. Here are some of the shares that currently pass those rules:

As always, value strategies do pick up speculative names - and the banknote printer De La Rue (LSE:DLAR) and news organisation Reach are good examples. 

Both businesses have financial baggage, but they have proved to be solid value recoveries in recent months. More generally, the balance of “relatively cheap” with “an improving trend” may be a useful way of finding the best value opportunities early - but careful research is needed. 

Could this be a theme through the rest of the year and into 2021? This week, markets picked up but the volatility was painful in places. With swings in sentiment likely to continue, it is not unreasonable to think that there will be more stocks for value investing strategies to go at in the months ahead.

Stockopedia helps individual investors beat the stock market by providing stock rankings, screening tools, portfolio analytics and premium editorial. The service takes an evidence-based approach to investing, and uses the principles of factor investing and behavioural finance to help investors make better decisions.