“Value investing is the discipline of buying securities at a significant discount from their current underlying values and holding them until more of their value is realized. The element of a bargain is the key to the process.” Seth Klarman, CEO, Baupost Group
Well, we made it! Happy Monday everyone.
Overall, the S&P, Dow, and Nasdaq all increased in December following a strong November. The S&P went up 3.7%, the Dow increased 3.3% and the Nasdaq accelerated 5.6%. This is certainly evidence of the expected “movement higher” that we mentioned in our last Market Update. It is also an optimistic response to the recent vaccine developments that are driving the potential for a quick recovery from Covid-19 in early/mid-2021.
Our expectation in Q1 ’21 is that a 5-8% correction will begin to take hold with the possibility that this correction could be larger if the market perceives a larger chance that the incoming Biden administration will raise taxes significantly.
The S&P went up 3.7% to 3,756 in December, as the markets focused both on value investments and the hope for a fast rollout of the Covid-19 vaccines to address the pandemic.
The Dow increased 3.3% to 30,606 in December, as the markets continued the rotation into lower PE value investments, especially industrial and consumer staples.
The Nasdaq accelerated 5.6% in December, as Tech stocks recovered from the pullback in Q3 ‘20 and value stocks continued their rotation back into the limelight.
In December, the growing number of coronavirus cases in the world, and specifically in the US, along with the associated constraint on full-scale business re-opening in the US continued to stress investors’ minds. Investors have also begun to think about how the new Biden administration will adjust corporate and individual taxes in 2021.
Countering this negative news, M&A transaction volume continued strongly, and the Fed continued its unprecedented support of the economy. In addition, rollout of the Covid-19 vaccines has been very positive and the Housing sector has been a bright spot with strong consumer demand thanks to low interest rates.
In January we believe the public markets will continue the rotation to lower PE industrial stocks and overall returns will move lower as they had gotten ahead of themselves in Q4 ’20. We believe that out-of-favor lower-PE Dow companies still represent a continued buying opportunity during the rest of Q1 ‘21. I especially like the Industrial sector where PE ratios are very reasonable, and growth in this sector should increase as the country opens back up for business. Verizon, Morgan Stanley, P&G, Walmart & Amazon all continue to be top selections as we view them as stronger and more nimble competitors in their respective sectors.
In our public portfolio in January, we continue to migrate into more quality equity investments at superior values. Please look at our latest TOP 10 investments list for our recommendations.
Thanks again for your consideration & for sharing your thoughts and ideas with us.
Have a wonderful January and 2021 ahead!
With gratitude,
Marlene
Marlene Oddo
Partner
PointFour Capital, LLC