- Legendary investor Bill Gross said investors should look more closely at value stocks rather than growth stocks like Apple, Netflix, and Amazon to make money right now.
- The retired fund manager said in his first investment outlook of the coronavirus pandemic that the outperformance of the “Fab 5” technology companies and other growth stocks are linked to real interest rates.
- Gross named four value stocks – IBM, Altria, Enterprise Products, and Abbvie – that he backs right now.
- “Value stocks, versus growth stocks, should be an investor’s preference in the near-term future,” he wrote
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Legendary investor Bill Gross, who is currently chairman of California-based tech incubator IdeaLab, said on Tuesday that investors should choose value stocks over growth stocks in the near future.
The retired fund manager said in his first investment outlook of the coronavirus pandemic that the outperformance of the “Fab 5” technology companies and other growth stocks are linked to real interest rates – which have declined over recent years.
Apple, Amazon, Facebook, Netflix and Google’s parent company Alphabet – often known as the FAANGs – are the “Fab 5” Gross was referring to, according to Reuters, which cited his spokesperson.
“A value investor (are there any left?) would know that over time a stock’s price is significantly influenced by real rates – not so much by nominal rates, which incorporate an outlook for inflation and (these days) deflation,” the former chief investment officer of PIMCO said.
Gross highlighted that many investors make decisions based on hopes for a return to an “old normal economy and a Fed focused more on inflation, and the real economy than stock prices and unemployment.”
He said the key reason behind growth of stocks like Apple and Microsoft compared to value shares lie in the close-knit links between their performance and inflation-protected securities.
“Value stocks, versus growth stocks, should be an investor’s preference in the near-term future,” Gross, who retired as portfolio manager from Janus Henderson in 2019, said.
He then endorsed four stocks he favours right now rather than the FAANGs:
- Enterprise Products, a gas and crude oil pipeline company.
- Altria Group, the tobacco giant behind Philip Morris International.
- IBM, the tech hardware giant.
- Abbvie, a pharmaceutical firm with around $US30 billion in annual revenue.
Gross made clear that his recommendations might be wrong, telling readers: “No guarantees!”
Wall Street experts have also guessed that monetary conditions as dictated by the Federal Reserve have encouraged a speculative investing behaviour, meaning that traders have gone on to pile into growth names – or proven winners – even as they have blown past historical valuations.
“The future price disparity of Microsoft, Apple and Amazon relative to lesser growth but still high quality stocks like Coca Cola or Proctor & Gamble, is subject to an ongoing decline in real rates, which to my mind, have seen their best days,” Gross wrote.
“Happiness is a healthy body, sinking a few 10-foot putts, and investing in value, versus the ‘Fab 5’,” he concluded