The nature-nurture debate may be one of the most popular battles in psychology. In financial markets? One can make the case for an octagon match between “value” and “momentum.”
Value-oriented investors tend to pursue bargains. They look at price-to-earnings (P/E), price-to-book (P/B) and price to-sales (P/S) ratios. They evaluate cash on corporate books after capital investments – a metric known as free cash flow. And when value investors worry about a firm or an industry’s financial well-being, they look at debt levels.
Momentum-minded men and women often keep things simpler. Is a security rising in price at a faster rate than a comparable asset? If so, it may be more likely to continue moving at an accelerated pace for the foreseeable future. And when might a change in price direction occur? It might take place in conjunction with price deceleration and/or trendline breaches – trendlines that are derived from simple moving averages or exponential moving averages.
In the current bull market, nearly all valuation metrics suggest that U.S. stocks are extremely expensive. On the other hand, most technical trends emanating from price movement are decidedly favorable for believers in the rally’s “legs.” It follows that, even though the median stock in the NYSE Composite is sporting the highest P/E and P/S ratios ever recorded, the momentum-based community has not been deterred from a pursuit of portfolio gains. Support for momentum-based price movement can be seen in the “higher lows” achieved since October. Additionally, the current price of the index currently resides well above a long-term trendline.
It may be extremely difficult to unearth genuine bargains in the late stage bull for U.S. equities. Nevertheless, foreign and global stock ETFs may be less expensive on a relative basis. What’s more, several of them are demonstrating near-term relative strength when compared to the entire universe of stock ETF possibilities.
Here are three that you might find worthy of additional investigation:
1. iShares MSCI Denmark Capped ETF (EDEN). Nothing is rotten or rotting in the state of Denmark at this moment. This exchange-traded tracker pursues the investment results of an index comprised of Danish stocks. The forward P/E at 17 is slightly less expensive than the U.S. forward estimate of 17.6. Granted, relative value for EDEN is not the big reason for its interest; rather, the Danish central bank cut its benchmark rate twice in January alone, placing the overnight lending rate into negative territory ( -0.35%). The ridiculously easy money policy and policy direction has kept the Danish currency (krona) weak like the euro. The chief benefit? The export-dependent nation can remain quite competitive. Indeed, as recently as mid-March, the central bank upgraded Denmark’s GDP full-year growth outlook. (Compare that to lowered expectations for the U.S. and a wide variety of foreign countries that have yet to escape stagnation.)