Finding long term value: Out of favour sectors

📊 Investing
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Hello,

After all those posts about complaints, “pump and dump trading” and all the rest I thought it would be nice to get into some actual long term investment discussions :wink: .

Basically, at a time in which the S&P has a very high Price to Earnings (P/E) ratio, a quick Google search is indicating over 35 ([Source 1] (S&P 500 PE Ratio [Source 2] (P/E & Yields)) I decided to read one of Peter Lynch’s books. I migh try Benjamin Graham’s after :wink: .

In his book he discussed that even in times of market overvalatios / exuberance certain out of favour sectors or companies (the latter being sometimes “turn arounds”) can frequently be very good value investments. I seem to remember that he names mortuaries, waste treatment plants, material cleaning companies as examples of his time.

Obviously we currently have sectors like aviation are undergoing enormous strain, so I don’t think that these are suitable sectors. I am mainly looking for and would like to discuss sectors that have not been necessarily brought to their knees by the pandemic and that at the same time still have low fundamentals (for example, P/E ratios of under 10). Hopefully these low or reasonably valued sectors won’t go much lower even if the “growth stocks” bubble decides to burst and in the long term they could provide market-beating returns.

I will start first, to encourage discussion. The ones that come to my mind currently are gas companies and banks in terms of sectors and Russia as a specific country, P/E ratios for russian companies seem quite low. Banks have the uncertainty of the economic conditions (although the effect is currently just cosmetic in the accounts, not real, yet), Russia has political uncertainty and gas has the fact that cleaner sources of energy will be favoured in future decades, however unlike petrol its prices and demands are relatively strong. Crucially gas and banks have still been operating during the pandemic due to their importance.

Ideally I’d want this to be a thorough discussion on different sectors or even markets (eg. specific countries) and possible compnies within them :smiley:.

I look forward to reading your thoughts/suggestions. :speech_balloon: :rainbow:

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Have a look at the collective finance, they just did an interesting post on what value investors tend to ignore,

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I have had a look, I think this might be the article you are referring to, from today:
https://thecollective.finance/2021/01/turning-dividend-plays-into-100-tax-free-returns/

Is this the one you meant?

Actually, to add to this: I think some Telecommunication companies have great potential. I hold a large position, in terms of percentage of my portfolio, in Telefonica.

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yeah its like the motley shite without the sales pitch.

Longer term no idea how well their picks will go, but a good idea source.

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I was thinking that maybe a good idea would be obscure sectors or individual stocks, but nothing really comes to my mind.

I had a look at the funeral stocks in this post, with no luck:

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How about life insurance stocks, surely premiums will be going up, so will profits from it?

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That might be a good shout. Do you have any stock suggestions within the space that we may be able to look into?
In the “insurance” space I looked at Allianz and Legal and General a while ago, but they also have a big investment aspect (Advice, ETFs, etc) to them as well as pensions.

I have currently come across a rubber tyre manufacturer in Singapore (Halcyon Agri Corp) that is currently doing very badly due to terrible margins. Don’t see much future in it unless they manage to raise margins, which as I don’t know much about the sector I canot say whether it is feasible.

I am currently looking at CoreCivic, it is a USA Prison REIT trading at a P/E ratio of 6.90 according to Yahoo.
Although the first headline that I have found is very negative, I think it may depend on how diversified the company is:

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Just Group
Metlife
Sunlife
Markel
United Health

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