Harsh treatment of growth stocks this year is trying investors’ patience, but the silver lining is that an assortment of stocks that are usually richly valued now look the opposite.
Some exchange traded funds more than others help investors take a broad approach to undervalued stocks. On the more positive side of that spectrum is the Goldman Sachs Innovate Equity ETF (GINN). In fact, GINN is one of the more ideal plays on accessing attractively or undervalued growth fare due to compelling breadth and sector traits.
With a 32.2 weight to tech stocks, GINN is underweight to that sector relative to old guard rivals in the large-cap growth fund category. Additionally, the Goldman Sachs ETF devotes almost half its weight to the healthcare, consumer discretionary, and communication services sectors, all of which are homes to undervalued stocks.
“By sector, communication services and consumer cyclicals are the two most undervalued, trading 37% and 25% below our fair values. Defensive stocks in the utilities, healthcare, and consumer defensive sectors, meanwhile, are about fairly valued,” noted Morningstar’s Susan Dziubinski.
Consumer cyclical and communication services stocks combine for almost 28% of GINN’s weight, while the fund devotes just 2% of its total weight to utilities and consumer staples names. Communication services names considered undervalued by Morningstar include high-quality fare Comcast (NASDAQ:CMCSA) and Facebook parent Meta Platforms (NASDAQ:META), both of which are GINN components.
“Sentiment has turned sharply negative across nearly every part of the communication services sector, observes Morningstar sector director Mike Hodel. More than 75% of the stocks in the media, interactive media, telecom, and communication services industries are undervalued,” added Dziubinski.
Financial services is another sector currently checking the undervalued box. GINN devotes just 8.4% of its weight to that sector, but two of its holdings from that group are considered attractively valued today. Those are BlackRock (NYSE:BLK) and Goldman Sachs (NYSE:GS) itself.
Healthcare, GINN’s second-largest sector exposure at 22%, though fairly valued has some valuation opportunities, as noted by Morningstar.
“Healthcare stocks held up reasonably well during the second quarter of 2022; the defensive nature of healthcare stocks played a part in the outperformance, surmises Morningstar sector director Damien Conover. The average healthcare stock is about 7% undervalued, with about one third of the stocks in the sector trading in 4- and 5-star range,” concluded Dziubinski.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.