For those who have ever studied a finance textbook it is likely they will have come across a theory called the efficient market hypothesis (EMH).
While many investors have discredited the EMH it still remains popular amongst some sections of the finance community and certainly there are assumptions used which are worth being aware of and acknowledging.
One way that some investors look to beat the market while utilising some of the principles that emanate from the EMH is by searching for ‘relative value’. By utilising this approach, an investor is effectively acknowledging that on average the market has got the price and value right, however, there could be pockets of value.
Recently, broker Goldman Sachs produced a table which identified large companies that were trading at significant price-to-earnings multiple discounts to their respective sector average.
If you’re wondering how to spend your weekend, consider taking a closer look at these 4 relative value stocks –
- From the media sector: Fairfax Media Limited (ASX: FXJ) is trading at a 36% discount
- From the materials sector: Orica Ltd (ASX: ORI) is trading at a 34% discount
- From the building materials sector: CSR Limited (ASX: CSR) is trading at a 29% discount
- From the gaming sector: Crown Resorts Ltd (ASX: CWN) is trading at a 26% discount
Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned.
We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.