Global Value Stocks Offer Potential Stability in a More Uncertain 2024

Value stocks are poised to deliver solid returns in what may prove to be a more unsettled year ahead, according to Mutual Series CIO Christian Correa.

Value stocks are magnificently ordinary. Not only are they in less flashy sectors like consumer staples, industrials and health care, but they also are trading at historically reasonable valuations. That might be advantageous to investors in what could be an uncertain 2024 when investors could face higher volatility among expensive growth stocks, normalizing interest rates and the further unwinding of pandemic-era stimulus. Such an environment may make these ordinary value companies look extraordinary.

Value’s valuations matter

Although value stocks have lagged their growth counterparts over much of 2023, we believe the set up for 2024 and beyond looks promising. Historically, starting valuations have been a strong indicator of long-term future returns.

Currently, the MSCI World Value Index’s price-earnings (P/E) multiple is trading at a discount to its historical average, whereas the P/E multiple for the MSCI World Growth Index is at premium. As seen in Exhibit 1, comparing the trailing P/E multiples for global growth and value stocks with their return over the next 10 years shows that lower P/E stocks achieved higher future returns over the next decade, based on data from FactSet and MSCI. As such, with growth stocks’ stretched valuations, we see many opportunities to find compelling value opportunities with significant future return potential.

Exhibit 1: Valuations Matter for Long-Term Returns 

Valuations Matter for Long-Term Returns 

Furthermore, we believe that finding companies with compelling catalysts that can unlock value and generate solid long-term returns will remain crucial for separating appealing value stocks from potential value traps, particularly in an environment of increasing uncertainty. We also think the market should reward stable cash flow generation and financial returns. We believe it’s important to focus on cash flows and financial returns to understand how a company is run and whether it can produce strong share price appreciation for investors over time.