REVEALED: The Best Value Opportunity Since 2000
Value stocks today are nothing less than a table-pounding buy.
This isn’t just my opinion…
It’s the opinion of one of the smartest investing shops in history — a team with a track record of making incredibly prescient market calls.
Time and again, history has shown that when these guys speak… it pays to listen.
So today, let’s dig into what they are saying and take a look at one stock you’re going to love…
The Value Opportunity — Shades of the Year 2000
Over the past forty years, the legendary investment shop GMO (Grantham, Mayo & Van Otterloo) has built a reputation for making great market calls.
The perfect example was what GMO did at the turn of the century.
In the late nineties, GMO didn’t just steer investors away from dangerously overvalued technology stocks that subsequently crashed…
They also steered them into the deeply undervalued non-technology stocks that nobody else was buying.
If you were paying attention to what GMO was saying and doing in 1999, you did very well over the next decade.
That’s because when the technology bubble popped in 2000, cash fled from tech stocks and into value.
This positioning allowed GMO to massively outperform the market, further cementing their status as legendary investors.
Now today, twenty years later, GMO believes that value stocks again present an extraordinary opportunity.
Here are the exact words from GMO’s recent letter to investors:
“As the current cycle has ground on slowly but surely, the valuation extremes have moved wider, creating an opportunity set for valuation-driven investors that looks as extraordinary as what we saw 20 years ago.”
What you need to understand about the folks at GMO is that they are not an excitable bunch.
They are conservative, understated and restrained.
Words like fantastic, exciting or extraordinary never factor into their vernacular.
When GMO refers to this current value opportunity as extraordinary, they really mean it.
Given the forty-year track record of excellence that GMO has established, this is a message well worth listening to.
But I’m ready to do more than listen.
Let’s pounce on this extraordinary value opportunity with a specific stock.
Shares of This High Quality Company Are Set to Motor
The current valuation of European car maker BMW (BMWYY) certainly looks extraordinary to me.
BMW shares currently trade at an incredibly cheap 0.8 times book value and just 6 times 2018 earnings. Meanwhile, the wider European stock market trades at 2.4 times book value and 21 times earnings.
That means that BMW trades at less than one-third the valuation of an average European company, which doesn’t make sense because BMW is no average company.
BMW is a luxury brand with a century-long pedigree of business excellence.
Across industries, companies with prestigious brands are able to earn wider profit margins because customers are willing to pay up for their products.
Sustainably wide profit margins are what makes for a great business, and it shows up in a company’s financial statements. As it does in the financial performance of BMW.
Over the long-term, BMW has earned a stout 15% return on equity while also growing book value by 11% annually.
Companies like this shouldn’t trade at any discount to the overall market, never mind the massive two-thirds discount to the market that BMW does.
This is high-quality at a bargain basement price.
Only once before have shares of BMW traded for less than book value.
That was at the depth of the 2008-2009 financial crisis, after which BMW shares snapped back hard — up 500% in 24 months!
Put it all together and it’s clear that the time for value stocks has again arrived.
And out of the bunch, there aren’t many that offer the kind of value that BMW does today.
Here’s to looking through the windshield,
Financial Analyst, The Daily Edge