Investing can be a lot simpler than some think. One stronger predictor of positive share price moves is correctly anticipating when a sector or stock that is unpopular will become popular. After all, as legendary investor Benjamin Graham said – “in the short term, the market is like a voting machine….”
Of course, he then went on to say “…however in the long run, the market is like a weighing machine” neatly summarising the philosophy behind his value based approach to investing. As many investors have discovered, one of the challenges to value investing is that it may take years for the market to give sufficient recognition to a share that is held as a value proposition.
Why shouldn’t investors take both propositions into account? A stock in an unpopular sector that is trading at a lower, potentially good value share price could deliver in both the short and the long term.
One of the puzzles of the economic upswing of the last few years was the failure of consumers to embrace the animal spirits of better conditions, and particular house prices. Naturally, many consumer stocks underperformed. When markets turned ugly in the last quarter of 2108 these same stocks were pulled down as well, and analysts doubled down on their cautious to bearish views on the sector. Throw in a profit warning, or just a conservative outlook, and there’s a perfect storm.
Which brings me to Costa Group (CGC). A profit warning in early January saw CGC shares slammed from above $7 to near $4. They’ve recovered somewhat since, and the lower share price may be an opportunity for long term investors to take a stake in a consumer exposed growth story. The two year citrus cycle may be a catalyst for further share price recovery.
Another on my radar is Lovisa (LOV). It’s a speciality, fast fashion, bricks and mortar retailer. While the future of retailing is up for grabs as online businesses disrupt, LOV is going a different way. The innovative approach is a higher risk, potentially higher reward investment. If time proves LOV right their share price could regain 2018 highs close to $12.