For the most part, the bull market of the past few years has not been kind to value investors. To be sure, many value plays have gained; the all-time highs at which broad market indices closed on Monday have not been driven solely by growth stocks. Still, for many fundamental-minded investors, the big money has been elsewhere.
Many observers have waited for that to change — but for the most part, it hasn’t. With a few exceptions like Apple (NASDAQ:AAPL) and Target (NYSE:TGT), the S&P 500’s biggest 2019 winners leaned toward tech and growth.
It remains to be seen whether the long-awaited shift from growth to value arrives in 2020. If it does, Tuesday’s big stock charts could lead the way. All three stocks lean toward the value end of the spectrum. And all three have made nice moves of late which could augur more upside ahead.
At this point, Pfizer (NYSE:PFE) has been a disappointing stock for the past several years. At August lows, shares sat below mid-2015 levels. Taking an even broader view, PFE stock still trades at a discount to its early 2000 highs.
But investors have stepped in since a disappointing second quarter report in late July sent shares tumbling. And the first of Tuesday’s big stock charts suggests the gains can continue:
- Technically, there’s a nice uptrend at the moment. Recent gains have PFE stock threatening to break through resistance. A modestly ascending narrow wedge usually presents the risk of a reversal, but shares are climbing above the resistance line of that pattern. A steadily rising 50-day moving average sets up a potential, and bullish, “golden cross” in the not-too-distant future. This is a stock grinding higher ahead of what looks like a key earnings report later this month, in which Pfizer should disclose its guidance for 2020.
- The chart isn’t perfect, admittedly, as Bret Kenwell detailed last week. But it has improved with the modest uptick in recent sessions. The fundamental case seems solid as well, with a dividend yield above 3.8% and a forward price-to-earnings ratio under 14x. It wouldn’t be difficult to imagine something closer to a 3% yield or a high-teen P/E multiple, both of which would get the stock above $45.
- That said, the fundamentals aren’t perfect, either. After all, Pfizer stock has been both cheap and high-yielding for some time, yet total returns have averaged less than 8% annually over the past five years. Pfizer needs either a big fourth quarter earnings report or a change in sentiment to drive a true breakout from $39. With one, or both, Pfizer could be one of 2020’s better value plays.
At 24x forward earnings and with a 2.7% dividend yield, Clorox (NYSE:CLX) stock doesn’t have the same value profile as PFE. But it, too, has managed to grind higher of late, and there’s a path for more gains ahead:
- At the moment, resistance simply seems unlikely to come into play any time soon. It’s possible a descending triangle pattern could bring in selling around $160, but that pattern seems poorly defined. With CLX stock clear of moving averages, momentum off a multiple bottom, and an October “death cross” in the rearview mirror, it does look like shares have at least a path to challenge summer highs around $165.
- Fundamentally, however, the case gets thinner. Clorox simply isn’t driving much of earnings growth at the moment. In fact, guidance for fiscal 2020 (ending June) suggests a 1% to 4% decrease in earnings per share. Organic sales growth is guided positive, at 1% to 3%, but margins continue to be a factor. At least for now, Wall Street doesn’t see much of an acceleration in fiscal 2021, with consensus estimates implying just 5% year-over-year growth.
- That said, defensive consumer names like CLX have been rewarded by investors of late. Procter & Gamble (NYSE:PG) rose 36% in 2019 thanks to strong underlying performance. Colgate-Palmolive (NYSE:CL) climbed 16% despite a growth profile similar to that of Clorox. CLX stock has lagged those peers, but those peers do show that the stock can rally if Clorox can deliver. Its next chance to do so will be with its fiscal second quarter report on Feb. 4. It seems likely that CLX will at least near resistance by the time of the release — with the strength of that release determining whether Clorox stock can finally break out.
L Brands (LB)
The issue for retailer L Brands (NYSE:LB) hasn’t been underperformance relative to the market, but rather an outright collapse. At November lows, LB stock had lost over 80% of its value in four years. But investors have stepped in, with the question now whether momentum can hold:
- Technically, the picture looks solid. LB stock bounced nicely after making a multiple bottom. It exited an often-bearish descending triangle last month, and burst through resistance in recent sessions to a five-month high. It’s worth noting as well that volume in the last few days has been reasonably heavy. The 200-day moving average may provide some resistance, but this looks like a breakout that can continue.
- Even with the gains, the value case still holds from a fundamental standpoint. LB stock trades at less than 10x consensus EPS estimates for this year and next. The dividend still yields nearly 6%. If the company can stabilize its performance and re-inspire confidence, there is still enormous upside in a blue-sky scenario. A mid-teen multiple to $2.40 in fiscal 2021 (ending January) earnings would get the stock near $40, at which point it still would yield over 3%.
- That said, stabilization is far from guaranteed. L Brands’ Victoria’s Secret nameplate has been hammered by changing consumer tastes and market share losses to American Eagle Outfitters’ (NYSE:AEO) aerie. Consolidated earnings are likely to decline around 20% this year, with the Street on average anticipating a modest decline next year as well. The rally of late has moved LB stock to the average analyst price target in a sector where Wall Street historically has been too optimistic in recent years.
- I’ve personally long thought LB stock was a value trap; clearly, some investors see a potential turnaround. It’s up to the company, starting with fiscal fourth quarter earnings in late February, to settle the debate. But in the meantime, the third of Tuesday’s big stock charts does suggest that bulls are in control.
As of this writing, Vince Martin has no positions in any securities mentioned.