Hotchkis & Wiley

Much has been made of the demise of value investing in recent years. This paper will highlight:

• The current opportunity for value relative to growth
• The unique opportunity within value
• The most common counterarguments put forth by growth advocates

Hotchkis & Wiley explores potential catalysts for improvement in an unloved industry.

• Poor investor sentiment in banks has created a rare valuation opportunity
• Banks are generally well-positioned to withstand low interest rates and pandemic-related credit losses
• Current bank valuations and capitalization levels create a compelling case for investing in this unloved industry

US valuation spreads are currently at levels last seen during the depths of the financial crisis, creating an unprecedented opportunity for value investors. In the equity markets, the ratio of the lowest quintile of stocks to median stock PE ratios is well over three standard deviations, a level that bodes well for future returns of value stocks. For instance, the Russell 1000 Value Index’s P/B and P/E are currently in the lowest quintile compared to its own history. Similar observations have been made across the market cap spectrum. Extreme value dislocations like we are currently witnessing are rare, and history suggests these market dislocations tend to revert to normal levels, particularly coming out of a significant market downturn like the one we are experiencing now.

Learning Objectives:

Participants will learn:

• How Value stocks have historically performed during different market cycles
• How valuation spreads compare today to the long-term historical average
• What the valuation disconnect looks like across the value-growth and market cap spectrum
• Why research focused on determining a company’s normal earnings power may lead to superior long-term investment results

2019 was a very unusual year. Domestic growth whipsawed from strong (over 3%) to concerning (just over 1%). This volatility was compounded by both domestic and global headline factors: a very public trade dispute and very weak global growth.