Using Value Gaps to Prevent Value Traps

Below is a synopsis of this investment report:

  • Studies have shown that value stocks, or stocks with low price-to-earnings multiples, outperform growth stocks, or stocks with high price-to-earnings multiple, over the very long run.
  • Despite value’s outperformance, growth certainly has its place in a portfolio through diversification and short-term sentiment shifts from value to growth.
  • We look for value gaps, or situations where sales and profits are increasing but the stock price stays flat, in order to avoid value traps, or stocks that are cheap for a reason.

 

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