Originally published by CMC Markets
Investing can be a lot easier than some people think. One stronger predictor of positive price movements correctly anticipates when a sector or a stock that is not popular will become popular. After all, as the legendary investor Benjamin Graham said – "in the short term the market is like a voting machine …"
Of course he then said: "… but in the long run the market is like a weighing machine", a summary of the philosophy behind its value-based approach to investing. As many investors have discovered, one of the challenges to value investing is that it can take years before the market gives sufficient recognition to a share that is held as a value proposition.
Why should investors not take into account both propositions? A share in an unpopular sector trading at a lower, potentially advantageous stock price could deliver both in the short and the long term.
One of the puzzles of the economic boom of recent years was the failure of consumers to embrace the animal spirits with better conditions, and in particular house prices. Of course, many consumer stocks performed worse. When the markets became ugly again in the last quarter of 2108, these shares were also demolished and analysts doubled their cautious to bearish opinions about the sector. Throw in a profit warning, or just a conservative view, and there is a perfect storm.
That brings me to Costa Group (AX :). A profit warning early in January hit CGC shares from above $ 7 to nearly $ 4. They have since recovered somewhat and the lower share price may be a chance for long-term investors to take part in a growth story among consumers. The citrus cycle of two years can be a catalyst for further price recovery of shares
Another on my radar is Lovisa (AX :). It is a specialized, fast fashion, brick and mortar store. While the future of retail is up for grabs if online companies disrupt, LOV goes in a different way. The innovative approach is an investment with a higher risk and potentially higher rewards. If time proves that LOV is right, their 2018 share price could reclaim highs close to $ 12.
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