Diversify your portfolio with these value stock recommendations from BMO (NYSEARCA:SPY)

June 23, 2024

Dilok Klaisataporn

Value stocks have continued to underperform as appetite for growth remains strong.

But this “underperformance should not cause investors to stay away from all value stocks entirely … as more targeted, valuation-based strategies can still generate favorable price returns for investors,” said BMO strategist Brian Belski. wrote in a note.

Analysis “shows that an investment strategy focused exclusively on stocks with an NTM P/E of less than 15 has delivered attractive risk-adjusted returns over the long term, and we believe this type of value-oriented strategy can outperform in the coming months given current market conditions and performance trends,” Belski said.

“Forward multiples have risen throughout the bull market and are currently over 20x, a relatively rare phenomenon since 1990,” he added.

“We believe this is exactly the kind of environment that should benefit a value-oriented investment strategy because when the majority of stocks are expensive, investors should look for lower-cost alternatives.”

“While the financial sector currently makes up more than a quarter of this value strategy, most other sectors are still relatively well represented with at least 10 stocks from seven other sectors making up the current list,” Belski said. “In addition, despite the general perception that a low P/E investment strategy would only allow the beaten-down names and groups to participate, technology – the best-performing sector since 2023 – is one of the sectors that has at least 10 stocks in the current list.”

S&P500 (NYSEARCA:SPY) (IVV) (VOO) Stocks with an NTM P/E below 15x that BMO rates as better: