A rare opportunity to buy even cheaper value stocks!

Value stocks are those that trade at a discount to their intrinsic or book value. Many investors build their strategies around these stocks, including the legendary Warren Buffett.

Value investors seem to buy companies trading below their intrinsic value and hold them, sometimes for a long time, until they reach their potential. Over the last century, value investing strategies have consistently outperformed all major indexes.

why now?

Yes, it is always easier to find value stocks in a falling market. And, as we have seen, March was not a good month for some sectors, especially financial stocks.

The March correction was triggered by the banking crisis in the US, notably when technology financier Silicon Valley Bank (SVB) was forced to sell bonds at a loss as depositors withdrew their cash.

These bonds have lost value because bond prices and bond yields are correlated – as you know central banks have pushed rates up.

But SVB is unique in the nature of the concentration of holding bonds and lack of diversity in the deposit base. However, the event has raised concerns that banks and other financial institutions are facing billions in unreleased bond losses.

A few weeks later, we now know that these fears were largely misplaced. Liquidity is strong in this post-GFC world and most banks will hold bonds to maturity – so this remains a loss on unreleased bonds.

But downward pressure on stocks has created opportunities. Mainly because many financial institutions in the UK trade at a discount.

Buffett is among the few value investors to capitalize on the opportunities created by the correction. “Bad news is an investor’s best friend. Lets you buy a slice of America’s future at a marked down price.” He added “net shopper” stocks benefit when the stock market goes down.

Where to put money

I focused on some of the stocks that were hardest hit by the March selloff. I liked financial stocks before the correction, and now some are trading 20% ​​lower than last month.

Among the biggest losers in the Standard Chartered. The bank is down 22% in a month – up 20% in a year. It is one of the more exciting UK-listed banks due to its focus on the fast-growing Asian and Middle Eastern markets.

Currently, Standard Chartered trades at a price-to-earnings ratio of 7.5, making it lower than its US peers, but among the more expensive UK banks. There is a natural concern that current interest rates are too high, and that this will result in higher depreciation costs. But medium-term forecasts see rates falling to a more attractive level – 2-3%. When stocks go down, I buy them.

Legal & General is another financial stock that has rallied after seeing downward pressure. It’s down 10% in a month – off 13% in a year – but there’s no guarantee. The solvency coverage ratio II increased to 236% from 187% during 2022, and business growth is positive – perhaps most affected by the positive trend in bulk purchase annuities.