“Back to the Future”

If “value” represents many of the industries and companies of the past, then “growth” is the future. Technology, biotech, fintech firms are among the new in our economy. For the first half of this year, value stocks, as a category, led in price performance. They were cheap at the beginning of the year and had been left behind after years of growth companies dominating the interest of investors. The expectation of the economy reopening was a catalyst to the return of attention to “value.” The earnings of these companies were exploding as demand for so many basic goods expanded.

However, now the price of many of these stocks no longer represent good value. Their accelerating earnings have been accounted for. In many cases, this is as good as it gets for old-line companies producing lumber, steel, plastics, etc. These are cyclical companies after all. To earn higher valuations, businesses need to produce increasing revenues, cash flows, and earnings from exploiting new opportunities; so “back to the future.” And that is what has been happening as “growth” companies are once again asserting leadership in stock market performance.

The Bull and his partners have maintained a balance between the two styles of investing with a bias toward growth. That now seems to have been prudent, especially in the fast-moving environment of investor interest. Adjustments have been and will be incremental. So far, so good, stay steady my friends.

The Lonely Bull