One of the advantages of traditional value investing is that I can buy stocks and hold them for a long time. When the strategy works, disadvantaged stocks and companies experiencing temporary problems can recover over time.
And when that happens, ongoing operational advancements can push stocks higher in years to come. And as a company’s outlook improves, the stock market sometimes pushes a company’s valuation up.
Returns may be worth pursuing
So a company that once traded at a price-earnings quote of maybe eight may eventually be seen by the market again as a hot stock and trade at a multiple of, say, 20. And that new quote s will likely apply to higher stocks. profits too – so the overall result for value investors can be dramatic.
Of course, value investing doesn’t always generate such good results. Sometimes poorly rated companies turn out to be cheap for very good reasons. And it’s possible to buy a value stock that gets even cheaper and never recovers. If I continue to keep dogs like these, I will lose money in the long run.
But, for me, the balance between risk and potential reward favors the selection of value stocks at the right time. And I feel like now is the perfect time to target UK equities with strong value characteristics.
A stock on my radar is the FTSE250it is Ashmore (LSE: ASHM). The company operates as an investment manager in emerging markets. And at around 285p, the share price is down around 36% in the past year.
In today’s second quarter trade statement covering the period to December 31, 2021, the numbers are negative. The company reported a $4 billion decline in assets under management during the period. And that’s due to net outflows of $2.2 billion from the company’s funds and a negative investment performance of $1.8 billion.
A positive outlook
Managing Director Mark Coombs believes the underperformance is due to “Persistent Global Inflation Expectations, New Variants of Covid-19 and Weaker Growth in China.” And the “difficult” emerging market conditions continued through the final months of 2021.
I don’t currently own any shares in Ashmore, but those emerging market investments already in my portfolio have also been weak lately. I hope the situation will improve soon, making the investment space attractive again.
And Coombes is also optimistic. He said the global macroeconomic environment is expected to be more supportive of emerging markets in 2022. And he believes that’s due to factors such as fiscal and monetary stimulus for China’s economic growth. And in the US, Fed policy tightening “is already reflected in valuations.“Meanwhile, commodity prices “provide a tailwind to the terms of trade, and therefore to the external accounts, of exporters”.
Coombes explained in the report that “very little” positive outlook is embedded in fixed income and equity valuations in emerging markets. And this situation suggests to me that the region is a potential value investment theme worth pursuing.
And with Ashmore’s share price close to 285p, the forecast dividend yield for the current trading year to June 2022 is just under 6%. Of course, there is no guarantee of a long-term positive investment outcome for me.
But I think the value proposition seems strong with Ashmore, and the title is high on my watch list. I would buy it now if I had the money to spare.
However, Ashmore isn’t the only dividend stock I’m considering right now…
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Kevin Godbold has no position in any of the stocks mentioned. The Motley Fool UK has no position in any of the stocks mentioned. The opinions expressed on the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we give in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of information makes us better investors.