Any way you look at it, the stock market is dangerously overvalued now (Yahoo Finance). Though Core Earnings hit all-time highs in 2Q24, valuations have risen more. The market looks more expensive, as measured by price-to-economic book value (PEBV) ratio, than it ever has since at least 2004.
Simply picking profitable companies isn’t enough, as a great company can still be a bad stock. So, how can investors get an edge? Understanding valuation, particularly the expectations for future profits baked into current stock prices.
The best fundamental investing opportunities come with stocks where profits are strong and expectations for future profit growth are low – that combination is the primary driver of our Stock Ratings. We leverage our proven-superior fundamental research on the individual stocks holdings of an ETF or mutual fund to assess the profitability and valuation of the overall portfolio. This process enables us to create forward looking Risk/Reward ratings for 7,400+ ETFs and mutual funds.
As we started work on the Best & Worst ETFs & Mutual Fund series of reports for 4Q24, we discovered a fund that successfully picks profitable companies with stocks that trade at valuations much lower than the stocks held in the benchmark.
Below is an excerpt from the full report, available to Pro and Institutional members. And, you can buy the full report a la carte here.
Forward-Looking Research Reveals a Very Attractive Fund
This fund earns our Very Attractive Predictive Fund Rating, while Morningstar gives it a 3-Star (backward-looking) rating. Our analysis of holdings reveals the fund has a higher allocation than its benchmark to profitable companies with cheap stock prices.
We leverage our Robo-Analyst technology to assess a mutual fund’s portfolio quality by analyzing the fund’s individual stock holdings. This uniquely rigorous approach enables us to create forward-looking mutual fund ratings based on our ratings for the stocks held in a fund.
Per Figure 1 in the full report, this fund allocates 25% of its assets to Attractive-or-better rated stocks compared to just 13% for the benchmark. On the flip side, this fund allocates just 18% of its assets to Unattractive-or-worse rated stocks compared to 37% for the benchmark.
Per Figure 2 in the full report, our holdings analysis also reveals this fund’s portfolio is of much higher quality than the S&P 500 as represented by State Street SPDR S&P 500 ETF Trust (SPY). SPY earns our Attractive rating, but only 6% of SPY’s portfolio is allocated to stocks rated Attractive-or-better and 37% is allocated to stocks rated Unattractive-or-worse.
….there’s much more in the full report. You can buy the report a la carte here.
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