Samantha Gleave, Cashflow Solution Team for Liontrust
The development of potentially effective and safe Covid-19 vaccines has given the world hope that an end to this pandemic is in sight. For stockmarkets, this has given impetus to value stocks, which for a number of years have underperformed their growth counterparts. The promise of a return to normality has seen value stocks rally, having been shunned through the crisis. A new US administration has further underpinned the value opportunity, with the potential for a significant infrastructure stimulus programme to be announced.
Our cash flow analysis suggests the potential for significant further upside in value in 2021. By our measures, there is a wide spread in share valuations between value companies, which tend to have high cash flow yields because their share prices have been depressed, and growth companies, where share prices are elevated but cash flow yields are low.
The near-term economic outlook remains very uncertain, which will undoubtedly contribute to bumps in the road for this economically sensitive investment style. However, recent developments – medical, political and economic – should not be ignored. Has a new value-led market regime finally started to emerge?