60 seconds with James Sym on value opportunities in Europe
James Sym explains why value stocks with good cashflow potential represent an attractive opportunity.
Unstructured Learning Time
Value stocks have underperformed
Within European equities, I would say that the best opportunities over the next 12-18 months are going to be in the value end of the market.
This is a part of the market that has underperformed hugely over the last five or six years since the financial crisis. It has underperformed by so much that a lot of these stocks are very cheap now.
Focus on cashflow
I am selectively buying banks, insurance stocks, commodity-sensitive businesses, and telecoms that are perhaps a little bit economically sensitive but where I think I can get very good free cashflow.
Typically for a big oil company I’ll be buying it today on a low amount of cashflow, thinking that perhaps in five years’ time I can make 20% free cashflow yields, which is a very attractive potential return that I could make out of those businesses.
Quality and growth stocks look expensive
Then I look at the other half of the market – the higher quality, growth area of the market – where most European investors are focused and where most European funds are invested. I look at a lot of those stocks and actually find them quite expensive.
I think you’ve got a huge dispersion and a very interesting opportunity set within European equities between value stocks which are very cheap and look very attractive, and then growth stocks which are overvalued.