Value investing has become something akin to the toy left on the shelf on boxing day. No one wants much to do with the investing strategy that made Warren Buffett a billionaire, but arguably has the least to offer in the current market environment.
For those unfamiliar, the basic philosophy of a value investor is finding (preferably) quality companies that for any number of reasons have been under-appreciated by the market and left with a price that doesn’t reflect the stock’s true value.
Unlike growth investors, value investors hate euphoric markets and love a good market crash (more quality companies go on sale).
Here are two ASX options to consider for a value investor this week.
Costa Group Holdings Ltd (ASX: CGC)
Costa is Australia’s largest horticultural company and a major supplier of fruits, berries and mushrooms. Costa’s share price has been bulldozed this year – CGC shares started 2019 at $7.18 but closed last Friday at a price of $4.14 (a YTD fall of 42%). Costa has been hit by numerous production issues, including low-quality harvests, natural disasters and pricing pressures. However, I think this may present a rare value opportunity, as I think many of Costa’s issues are temporary and not structural. I also don’t believe demand for fresh fruit and vegetables is going away, therefore Costa may present a good long-term value play.
Vanguard Australian Shares Index ETF (ASX: VAS)
This one is for all those value investors that can’t find any value out there (which I can’t blame you for). If no pricing opportunities are presenting themselves, I believe that the next best option is increasing your cash position (all good things must come to an end, after all). If you already have a significant cash reserve, a dollar-cost-averaged position in a market-wide ETF would be another option to consider. VAS would fit this bill nicely, covering the top 300 companies on the ASX and also paying a dividend yield of about 4% on current prices. If you can’t find any standout ASX companies at a good price, you may as well just buy them all.
I know it’s a tough time to be a value investor, but value investing has shown itself to be a quality long-term strategy and one that shouldn’t be abandoned just because markets are high. Accumulating cash and reducing your exposure to the markets might be a prudent move in these times – that’s what Mr Buffett is doing anyway.
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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO. 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 Scott Phillips.