Value is Still Viable

Determining the value of a stock has been more difficult in 2022, as the fluctuation in interest rates and inflation has had an outsized effect of the valuation of all companies. The individual performance and business outlook for a single stock has mattered less to its value. That doesn’t mean value investing is dead though.

Einhorn defines value investing as “trying to do security analysis, thinking about what companies are worth.” This can take some homework on the part of the trader. He notes that there are some “dramatically misvalued companies” in the current environment.

Moomoo’s stock screener can help identify stocks that trade below certain multiple thresholds, but that won’t necessarily shield investors from any additional increases in interest rates. One possible strategy is to identify undervalued stocks using the screener and then short a market index against these positions. If the basket of value stocks outperforms the market you will profit, even the value of the basket falls.

Einhorn notes that making money on value stocks in the current environment could take a long time. “Eventually we are going to have to get paid by the company,” he said. That happens if companies remain profitable and continue to buyback stock and provide dividends over the long run.