Value investing is like eating a prickly pear.
Only those that are knowledgeable on the topic should consider doing it.
That's because (successful) value investing requires a solid grasp of finance and business. But it also requires nerves of steel, since more often than not the companies you'll unearth as part of your research are those that no one feels comfortable owning.
As Warren Buffett says, "you pay a very high price in the stock market for a cheery consensus."
Six value picks
That's why it was unsurprising to know that the six 'value' stocks which made it through investment bank UBS' three-part stock filter have a few hairs on them.
According to an article from Fairfax Press, the stocks were:
- Iluka Resources Limited (ASX: ILU)
- Santos Ltd (ASX: STO)
- South 32 Ltd (ASX: S32)
- Qantas Airways Limited (ASX: QAN)
- Origin Energy Ltd (ASX: ORG), and
- Alumina Limited (ASX: AWC)
Analysts at the top investment bank used both absolute and relative values to filter their top picks, including:
- Low price to book ratios
- Low price to earnings, relative to their historical levels; and
- Modelling value over the cycle, by forecasting growth till 2018
Buy, Hold or Sell?
There are many ways to invest, but value investing is the only one that I know which has consistently beaten the market over many decades.
Unfortunately, there is no checklist-type formula for value investors because it so often relies on investors making informed (and often variant) perceptions about the growth of a business and the value of its assets, which are often intangible.
Therefore, while I'm not a buyer of any of the six companies identified by UBS above, I wouldn't be hasty to rule them out completely from providing above-average returns to shareholders.
