3 Value Stocks To Consider In 2014

money and investingJohn Whitefoot: Yesterday, I wrote about how a raft of weak first-quarter results could trip up the S&P 500 and put a dent in its unblemished bull run. My theory: the S&P 500’s stellar performance in 2013 was a result of financial engineering (share buybacks and cost-cutting) and the Federal Reserve’s monetary policy, not strong revenue and earnings growth.

As a result, the S&P 500 and other key stock indices are overbought and overpriced, meaning stocks will have a tough time justifying their lofty valuations if first-quarter results fail to wow investors. And odds are good that they will disappoint. A record 94% of S&P 500 reporting companies revised their fourth-quarter guidance lower.

That is, unless investors fail to realize earnings projections were lowered and reward stocks for beating barely there expectations—it’s not impossible. For evidence, I point to the action in the S&P 500 in 2013.

With stocks on the S&P 500 being overpriced, it’s getting more and more difficult to find equities that will actually perform well based on legitimate metrics, like revenues, earnings, and cash. For the most part, it seems investors punish those stocks that don’t perform as well as expected by simply not lifting their share prices higher. As a result, it’s become increasingly difficult to build a balanced portfolio with both growth and value stocks—especially when you consider the fact that analysts expect the S&P 500 to grow just six percent in 2014. Analysts might be more optimistic about the S&P 500 long-term, but that’s of little solace for investors hoping to actually make money this year.

Investors on the lookout for value stocks may need to use a different tactic this year. Instead of looking for fundamentally solid stocks with a low debt load and strong cash position, investors will also need to look for value stocks that are trading down from their pre-recession highs.

Considering downtrodden value stocks in a regular market is easy, but some value stocks become less appealing during a bull market. That’s because stocks that are trading off their previous highs or not gaining traction in a free-for-all bull market must be doing so for a reason. This is a fair assessment; some stocks deserve to be kicked off the cliff, which is why it’s important to understand the value stocks you’re looking at.

(...)Click here to continue reading the original ETFDailyNews.com article: 3 Value Stocks To Consider In 2014 [Devon Energy Corp, Suncor Energy Inc. (USA), Cowen Group Inc]

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