Rush to Low-Volatility Stocks is Creating Some Bargains . . . in High-Volatility Shares: Look at These
Money has been pouring into low-volatility exchange traded funds this year. This YCharts story looked at two of them, as well as at research that showed that over 20 years, a low-volatility index returned 9.9% annually vs 7.8% for the S&P 500.
But all that interest in low volatility (read: value) investments is driving up prices is some sectors, like utilities, and creating some good deals in others. SmartMoney reports that more volatile stocks are trading at a discount – a 16% discount for “high-beta” stocks vs “low-beta” ones. Utilities are more expensive than energy companies. Cereal companies are most expensive than restaurant companies. And so on.
Consider Joy Global (JOY), a machinery and manufacturing company. Its revenue growth has risen sharply, as has its earnings:
Yet its PE has fallen:
Consider also Ford (F), whose earnings are admittedly better than revenue growth:
But its PE has plummeted:
And look at Lennar’s (LEN) revenue growth and earnings:
Compare that to its PE: