Latest news with #EugeneFama
Reuters
16-05-2025
- Business
- Reuters
Breakingviews - Value investing is poised to rise from the dead
LONDON, May 15 (Reuters Breakingviews) - Warren Buffett, the greatest investor of all time, has announced his retirement. Fellow value investors are in a state of shock. Unfortunately, they have more serious problems to consider. For years, their favoured investment style has been out of fashion. Clients have lost patience. In a world in which the U.S. stock market index has delivered consistently outsized returns, low-cost funds that passively track an index seem a no-brainer. Yet the prospects for value investors have always been always brightest when the rest of the world loses faith. Over the very long run, buying equities at relatively cheap valuations has worked out well. Economists Eugene Fama and Ken French define value as a low ratio of share price to book value. Using this measure, U.S. value stocks have beaten growth stocks, which have high price-to-book ratios, by 2.5% a year since 1926. Value has also outperformed in most other overseas markets, according to the UBS Global Investment Returns Yearbook compiled by Elroy Dimson, Paul Marsh and Mike Staunton. Its luck ran out, however, on the eve of the global financial crisis. Between 2007 and 2020, growth beat value. The latter recovered some ground in 2020 but fell back again after the 'Magnificent Seven' big technology stocks took off in late 2022. It is important to note that price to book is not the metric contemporary value investors rely upon. Warren Buffett's partner, the late Charlie Munger, taught him to consider a firm's competitive position – what the Oracle of Omaha called the 'moat.' If a business consistently earns above average returns on capital, investors can safely buy its shares at a premium multiple to the rest of the market. Furthermore, the balance sheet value of a company's assets is not a reliable measure of value, since it excludes many intangible assets such as research and development. Share buybacks and acquisitions further distort accounting book value. Still, there are other investment oddities to consider. Small-cap stocks, which historically have beaten larger rivals and provide a favourite hunting ground for value investors, have also had a dismal run. Global stock markets, both the developed and emerging variety, have been trounced by the extraordinary performance of U.S. stocks. Between 2010 and the start of this year, American equities had delivered annualised returns of 10% after inflation, according to UBS. Over the same period, the other stock markets have collectively returned 2.6% a year after inflation. Emerging markets returned just half that figure. Howard Marks, the veteran value investor and co-chairman of Oaktree Capital Management, laments that 'all norms have been overturned.' The hard times for value investing can be explained by various factors. First, ultra-low interest rates after the global financial crisis increased the appeal of growth stocks whose profits lie in the distant future. Higher-yielding value stocks were relatively disadvantaged. Second, value investors have suffered from the rapid expansion of index investing. Nearly 60% of the U.S. stock market is currently held by funds that passively track a benchmark. Goldman Sachs forecasts that between 2014 and 2026 the cumulative outflows from U.S. actively managed equity mutual funds into passive vehicles will reach around $3 trillion. As indexation advances, investors dump the value and small-cap stocks owned by traditional fund managers in favour of the S&P 500 Index (.SPX), opens new tab, which is heavily weighted towards larger and more expensive stocks. The United States is home to the largest and most profitable companies the world has ever seen. The outsized returns of the Magnificent Seven over the last decade have depressed the relative returns of both value stocks and small caps. By the end of last year, the U.S. stock market had become more concentrated than at any time since the 1930s. Georg von Wyss, a portfolio manager at Zurich-based firm BWM, observes that in the past periods of extreme market concentration have been accompanied by the underperformance of value stocks. This was the case during the 'Nifty Fifty' boom of the early 1970s and again in the technology bubble of the late 1990s. Towards the end of that craze, value stocks were exceedingly cheap relative to the overall market. Clients closed their accounts with underperforming investment firms. Several well-known value managers were either fired or took early retirement. Warren Buffett, who didn't partake in the market frenzy, was deemed to have lost the plot. But when the boom turned to bust and market concentration declined, as it did in 1975 and 2000, value stocks outperformed for years. Could value investors be on the verge of yet another winning streak? The turmoil of the early months of Donald Trump's second term may signal such a shift. At the London Value Investor Conference on Wednesday Richard Oldfield of Oldfield Partners said that the new U.S. administration, with its on-off threat of tariffs and hostile rhetoric to erstwhile allies, poses a risk to trend of 'American exceptionalism'. Sensing the loss of U.S. support, Germany is borrowing to invest in defence and infrastructure. If capital flows to the United States start to reverse, developed and emerging stock markets stand to benefit. Value rallies have repeatedly petered out in recent years but, says Oldfield, 'this time is different.' Other headwinds that have buffeted value investors over the past decade may also be about to disperse. Over the past three years, interest rates have returned to more normal levels. The Magnificent Seven are currently locked in an arms race to invest in artificial intelligence. Time will tell whether their vast capital spending delivers an adequate return. These megacap growth stocks have underperformed in the year to date. Meanwhile, value and small-cap stocks in the United States and elsewhere offer exceptional opportunities. Last year, David Einhorn of Greenlight Capital pronounced that value was 'dead, opens new tab'. Another speaker at the London conference, Alissa Corcoran of Kopernik Global Investors refutes this claim. Value investing is immortal, she says. As index funds absorb a greater share of the world's stock market, fundamental investors are still needed to perform the vital role of price discovery. Ideally, such investors would exhibit a patient, long-term approach and not be swayed by the herd. They should be careful stewards of their clients' capital, and, above all, be endowed with common sense. Warren Buffett displayed these virtues to an uncommon degree. He will be missed. But there are legions of value investors ready to fill the void. Follow @Breakingviews, opens new tab on X
Bloomberg
06-03-2025
- Business
- Bloomberg
Odd Lots: Eugene Fama and David Booth on the Birth of Modern Finance
The 1970s were a pretty eventful time in markets. There was high inflation, the end of the gold standard, and a stock market crash. There was also a bunch of ideas coming out of the University of Chicago that would go on to be famous and highly influential for investors. Perhaps the most prominent is the Efficient Market Hypothesis, posited by Nobel Laureate Eugene Fama, which says that markets are right and it's useless for investors to try to outguess them. Fama later teamed up with David Booth, the founder of Dimensional Fund Advisors, and has been a longtime collaborator with the firm, which now has $777 billion under management. Today, they're releasing a documentary directed by Errol Morris and called "Tune Out the Noise," which chronicles this important time. We speak to both of these investment legends about the development of their theories, how they put them into practice, subsequent criticism, and what comes next.
Bloomberg
06-03-2025
- Business
- Bloomberg
Eugene Fama and David Booth on the Birth of Modern Finance
Listen to Odd Lots on Apple Podcasts Listen to Odd Lots on Spotify The 1970s were a pretty eventful time in markets. There was high inflation, the end of the gold standard, and a stock market crash. There was also a bunch of ideas coming out of the University of Chicago that would go on to be famous and highly influential for investors. Perhaps the most prominent is the Efficient Market Hypothesis, posited by Nobel Laureate Eugene Fama, which says that markets are right and it's useless for investors to try to outguess them. Fama later teamed up with David Booth, the founder of Dimensional Fund Advisors, and has been a longtime collaborator with the firm, which now has $777 billion under management. Today, they're releasing a documentary directed by Errol Morris and called " Tune Out the Noise," which chronicles this important time. We speak to both of these investment legends about the development of their theories, how they put them into practice, subsequent criticism, and what comes next.
Yahoo
02-03-2025
- Business
- Yahoo
Merck & Co., Inc. (MRK): Among the Best Affordable Dividend Stocks to Buy According to Hedge Funds
We recently published a list of . In this article, we are going to take a look at where Merck & Co., Inc. (NYSE:MRK) stands against other best affordable dividend stocks to buy according to hedge funds. In 2024, several major tech companies surprised investors by announcing their first-ever dividend payments. Traditionally, technology firms reinvest billions annually to fuel growth, leading to the perception that they rarely distribute dividends. However, as more large-cap companies prioritize enhancing shareholder returns, a balanced approach—focusing on both income generation and stock appreciation—is increasingly becoming the norm. The market has been experiencing uncertainty in recent days, leaving investors concerned about its future direction. Given this unpredictability, a wise strategy is to consistently invest in high-quality dividend stocks when they are attractively priced, rather than attempting to time market fluctuations. READ ALSO: An analysis of historical trends suggests that undervalued stocks have delivered stronger long-term returns. Research conducted by Eugene Fama of the University of Chicago and Kenneth French of Dartmouth College highlighted that stocks with lower price-to-book ratios outperformed the broader market index between 1963 and 1990, according to Oakmark Funds. Their findings also noted that growth investors often favored companies with exciting prospects, while value investors focused on more traditional, overlooked stocks. In the long run, value investors tended to see better results. During the high-inflation environment of 2022, value stocks declined by 7%, whereas growth stocks saw a steeper drop of 28.6%. Furthermore, value stocks in the US posted their strongest relative performance against growth stocks since the dot-com crash of 2000. Analysts suggest that value stocks tend to hold up relatively well during economic downturns. During recessions, investors often become more risk-averse and seek out stable, resilient investments, which frequently include value stocks. A report by GMO examined the performance of undervalued stocks during US recessions since 1969, using valuation metrics such as price-to-book, price-to-earnings, Composite Value, and a combination of value models within their Opportunistic Value strategies. While the firm does not recommend constructing portfolios based solely on traditional price-to-book or price-to-earnings ratios, the report found that even these simple metrics have historically performed fairly well during recessions. Notably, all value models—except price-to-book—delivered stronger returns during recessionary periods (including the COVID-19 downturn) than in non-recession months over the past 55 years. Dividend stocks have underperformed in recent years, largely due to the rising hype surrounding AI-related investments. Despite this, analysts continue to favor dividend stocks for their strong long-term potential. Morningstar's chief US market strategist, Dave Sekera, recently shared insights on their future outlook and current valuation. Here are some comments from the analyst: 'I'm really thinking that dividend stocks are a good place to be in the first half of the year, where you can at least capture some of those high dividends for the next couple of quarters. I also like that those stocks are going to be lower in duration. So if we do have interest rates continuing to climb, those would perform better. And of course, then we also have the unknowns of exactly what a Trump presidency is going to bring here in the first quarter and even into the second quarter. So I think that there is probably more downside risks of the market in the short term than upside risk. So therefore, I like a lot of these dividend stocks, which of course are more often than not in the value category.' To create this list, we screened for dividend stocks with a forward P/E ratio under 25, as of February 26. Then, we picked companies from that list that have a reliable history of paying dividends consistently to their shareholders. We ranked the resulting list based on the number of hedge fund investors who held stakes in these companies, as per the Q4 2024 data from Insider Monkey's database. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (). A close-up of a person's hand holding a bottle of pharmaceuticals. Number of Hedge Fund Holders: 91 Forward P/E Ratio as of February 26: 10.13 Merck & Co., Inc. (NYSE:MRK) is an American multinational pharmaceutical company, headquartered in New Jersey. The company offers innovative health solutions to its consumers. The stock has declined by nearly 10% since the start of 2025. The recent drop in stock price is primarily attributed to lower-than-expected revenue guidance for 2025. The company projected revenue between $64.1 billion and $65.6 billion, falling short of analysts' expectations of $67.31 billion. Another factor impacting its outlook is the temporary suspension of Gardasil shipments to China, with deliveries expected to resume by mid-2025. In the fourth quarter of 2024, Merck & Co., Inc. (NYSE:MRK) reported $15.6 billion in revenue, reflecting a 7% increase from the same period the previous year. The company has strengthened its leadership in specialty pharmaceuticals and oncology, with its flagship cancer treatment, Keytruda, playing a key role in transforming cancer care and driving substantial revenue growth. Strong market positioning has allowed Merck to generate significant cash flow, supporting shareholder returns. In fiscal 2024, Keytruda sales climbed 18% year-over-year, reaching $29.5 billion. On January 28, Merck & Co., Inc. (NYSE:MRK) declared a quarterly dividend of $0.81 per share, which was in line with its previous dividend. Overall, the company has been growing its payouts for 14 consecutive years, which makes it one of the best dividend stocks on our list. The stock has a dividend yield of 3.62%, as of February 26. Overall, MRK ranks 9th on our list of best affordable dividend stocks to buy according to hedge funds. While we acknowledge the potential for MRK as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MRK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock. READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap Disclosure: None. This article is originally published at Insider Monkey. Sign in to access your portfolio
Yahoo
28-02-2025
- Business
- Yahoo
Is Oracle (ORCL) the Best Affordable Dividend Stock to Buy According to Hedge Funds?
We recently published a list of . In this article, we are going to take a look at where Oracle Corporation (NYSE:ORCL) stands against other best affordable dividend stocks to buy according to hedge funds. In 2024, several major tech companies surprised investors by announcing their first-ever dividend payments. Traditionally, technology firms reinvest billions annually to fuel growth, leading to the perception that they rarely distribute dividends. However, as more large-cap companies prioritize enhancing shareholder returns, a balanced approach—focusing on both income generation and stock appreciation—is increasingly becoming the norm. The market has been experiencing uncertainty in recent days, leaving investors concerned about its future direction. Given this unpredictability, a wise strategy is to consistently invest in high-quality dividend stocks when they are attractively priced, rather than attempting to time market fluctuations. READ ALSO: An analysis of historical trends suggests that undervalued stocks have delivered stronger long-term returns. Research conducted by Eugene Fama of the University of Chicago and Kenneth French of Dartmouth College highlighted that stocks with lower price-to-book ratios outperformed the broader market index between 1963 and 1990, according to Oakmark Funds. Their findings also noted that growth investors often favored companies with exciting prospects, while value investors focused on more traditional, overlooked stocks. In the long run, value investors tended to see better results. During the high-inflation environment of 2022, value stocks declined by 7%, whereas growth stocks saw a steeper drop of 28.6%. Furthermore, value stocks in the US posted their strongest relative performance against growth stocks since the dot-com crash of 2000. Analysts suggest that value stocks tend to hold up relatively well during economic downturns. During recessions, investors often become more risk-averse and seek out stable, resilient investments, which frequently include value stocks. A report by GMO examined the performance of undervalued stocks during US recessions since 1969, using valuation metrics such as price-to-book, price-to-earnings, Composite Value, and a combination of value models within their Opportunistic Value strategies. While the firm does not recommend constructing portfolios based solely on traditional price-to-book or price-to-earnings ratios, the report found that even these simple metrics have historically performed fairly well during recessions. Notably, all value models—except price-to-book—delivered stronger returns during recessionary periods (including the COVID-19 downturn) than in non-recession months over the past 55 years. Dividend stocks have underperformed in recent years, largely due to the rising hype surrounding AI-related investments. Despite this, analysts continue to favor dividend stocks for their strong long-term potential. Morningstar's chief US market strategist, Dave Sekera, recently shared insights on their future outlook and current valuation. Here are some comments from the analyst: 'I'm really thinking that dividend stocks are a good place to be in the first half of the year, where you can at least capture some of those high dividends for the next couple of quarters. I also like that those stocks are going to be lower in duration. So if we do have interest rates continuing to climb, those would perform better. And of course, then we also have the unknowns of exactly what a Trump presidency is going to bring here in the first quarter and even into the second quarter. So I think that there is probably more downside risks of the market in the short term than upside risk. So therefore, I like a lot of these dividend stocks, which of course are more often than not in the value category.' To create this list, we screened for dividend stocks with a forward P/E ratio under 25, as of February 26. Then, we picked companies from that list that have a reliable history of paying dividends consistently to their shareholders. We ranked the resulting list based on the number of hedge fund investors who held stakes in these companies, as per the Q4 2024 data from Insider Monkey's database. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (). A team of IT professionals meticulously crafting a large-scale enterprise performance management system. Number of Hedge Fund Holders: 104 Forward P/E Ratio as of February 26: 24.04 Oracle Corporation (NYSE:ORCL) is an American software company, based in Texas. The company is well known for its cutting-edge data center infrastructure, which is essential for AI development. Demand for its services currently exceeds supply, as it continues to be a key partner for major AI firms such as OpenAI, Cohere, and Elon Musk's xAI. While the company operates efficiently, it is still striving to keep pace with rising demand. As of fiscal Q1 2025, Oracle had 162 data centers either operational or under construction. To address this shortage, the company has ambitious expansion plans, aiming to grow its data center network to between 1,000 and 2,000 in the future. In the past 12 months, the stock has surged by over 55%. Oracle Corporation (NYSE:ORCL) posted solid financial results for fiscal Q2 2025, with revenue reaching $14.06 billion, marking a 9% year-over-year increase. Its cloud services segment, which includes Infrastructure-as-a-Service (IaaS) and Software-as-a-Service (SaaS), brought in $5.9 billion, reflecting a 24% increase in both USD and constant currency. Cloud infrastructure revenue (IaaS) saw particularly strong growth, surging 52% to $2.4 billion. At this pace, Oracle's cloud revenue is projected to surpass $25 billion for the fiscal year. Oracle Corporation (NYSE:ORCL) has also gained investor interest due to its consistent dividend payments. It currently offers a quarterly dividend of $0.40 per share and has a dividend yield of 0.93%, as of February 26. The company has been distributing dividends since 2009 and has increased payouts at an average annual rate of nearly 11% over the past five years, which makes it one of the best dividend stocks on our list. Overall, ORCL ranks 3rd on our list of best affordable dividend stocks to buy according to hedge funds. While we acknowledge the potential for ORCL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ORCL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock. READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap Disclosure: None. This article is originally published at Insider Monkey. Sign in to access your portfolio
