Loading summary
Transcript3 lines
- [00:03]
A
This is the Value Investor Podcast with Tracy Reinek, all things Value all the time.
- [00:09]
B
Welcome back, value Investors. So the title of this podcast is Lessons from the Dot Com Stock Bust. And I'm sure you're wondering what does that have to do with value investing? But it has to do with a lot, because if you recall, or maybe you don't recall, maybe you're a younger investor and you weren't investing during the.com boom or you weren't even alive yet during the dot com boom. Growth stocks dominated the 1990s for the most part, but they did. We had Microsoft, Intel, Cisco, Dell. Those were the tech titans of the time, similar to the Magnificent Seven. And everybody was in them and every mutual fund owned them. And then it went bust and people rotated after the bust into value stacks and the next decade, 2000 to 2010, which is usually remembered as being a terrible decade for stock investors because you had the great financial crisis and the.com bust on either end of decade. But for value investors, it actually was not that bad of a decade. In fact, for some value investors, if you were in commodities, for instance, it was an outstanding decade and you outperformed easily the s and P500. I'm bringing this up because that is one of the biggest lessons from the dot com stock bust is that many of us got overinvested in the growth names. And why wouldn't we? They were soaring. And I'm not just including the tech titans, but as I've mentioned many times on this podcast, the drug stocks, the big pharma stocks also soared in that decade of the 1990s, with many of them up over 1,000%. And there was an old Money magazine article, I don't know if some of you remember Money magazine. It used to be one of my favorites, but it did meet its demise when magazines kind of started going away. If you liked Money magazine, as an aside, I do recommend Kiplingers, which is still in magazine form, as a replacement if if Money magazine was one of your favorites. But this old article was from the early 1990s, and it highlighted people's portfolios. And in it was a couple who had gotten rich in the 1990s off of owning the big drug stocks. So they were up, you know, a thousand, two thousand percent on their portfolio over that time period. But they had 80% of their portfolio in the early 90s in stocks like Pfizer and Merck. And they didn't see anything wrong with it because it had done so well the prior decade that they believed it would just continue on like that. I mean, Pfizer wasn't going to go anywhere, right? But this was the same kind of view that many of us had about the tech titans. And as we know now, all these years later, Microsoft, Cisco, intel and Dell didn't go anywhere. They're still around. Microsoft is even one of the Mag sevens now and making new highs. But the returns weren't so great in that decade for all of those tech titans and it turns out the drug stocks either. In fact, for Pfizer it has taken 25 years. It's been 25 years for Pfizer and it's still lagging. I'm going to look just even at the five year for Pfizer now because some of these became value stocks like years ago. I've covered Pfizer many times on this podcast because it has shown up in various trackers screens that I've run over the years. But Pfizer still on the five year track even after the surge in the pandemic. When it has a vaccine, it's still down 21% over the last five years versus 71% gain for the S&P 500 over that period. We do have an all feature on our chart, so it's not as good of comparison. So you can really see the 1990s surge though. You click on it and you look at the forever chart. I mean it was up over 10,000% from the 1960s however, and then it collapsed into 2008 and the financial crisis. It has been recovering since, but has had another big downturn out of the pandemic. And so anyone who's bought, who didn't buy in 1960s is still struggling a bit right now from the 1960s. The shares are actually still up 6228% over that period. But as we know, if you've just bought in recent years, even the five year, like I mentioned, you are underperforming. And so what do you do as an investor if you've been in these really hot areas? Growth stocks that have been doing really well for years or decades, like an Amazon like Microsoft now, like these stocks in the 1990s were doing. I think some of the key is to think about why you're investing and what your plan is for that money. Right? Because if you were just intending to buy and hold Pfizer since 2000 and not tap any of that money, it's not in your retirement funds and now it's 26 years later, you have been getting a sizable dividend with Pfizer and maybe that works in your plan and you're not tapping it at a time when it sold off say into 2008. So you don't really have sequence of returns risks. But most of us aren't like that. Most of us aren't going to stay in a stock for 26 years. We are investing for reasons whether or not it's to save for say a home down payment, our kids college or our retirement or some other longer goal. Maybe we want a pool in the backyard or a boat for our vacation, vacation home. Or maybe we're saving for a vacation home and you know, we put it in the stock market. Then we have this issue of sequence of returns risks. Now what, what is the sequence of returns risk? That term gets thrown around a lot and really what it means in its basic form is that you are going to take money out of your stock investments. It could be any investment actually. But we're using stocks for this podcast. We're taking money out right as there's a stock market decline. So many people have told me on X recently like, oh, I don't care about sequence of returns risks because I'm a long term investor. I'm just going to ride out the ups and downs. And that is good technique and that is what you should be doing for long term investors. But if you are intending to use the money from your stock portfolio for whatever reason you've been saving, so you're intending to use it to pay for your child's college tuition, then you do risk this sequence of return risks that there's a big stock turn down right when you're pulling money out. Now obviously you could plan around some of this with your financial advisor to move money into cash or other buckets that can be deployed so you don't have to sell any stocks on a downturn. But not all of us plan this well. And after a long rally we tend to think that maybe the a bear market is never going to come again. And so we get a little complacent. And I heard a story recently about this on the radio and yes, I still listen to the radio and these I listen to all news station and it plays pre programmed programming, pre recorded, pre recorded programming on the weekends. And this show in particular was playing like every Saturday morning when I was getting up to go to my nephew's football games, college football games. And so I heard it multiple weeks in a row and strangely enough they kept repeating the same episode. So I was kind of listening to it the first time. I really was listening to it the second time, and then I heard it five or six or seven times. I did end up in the end kind of thinking maybe they're sending me some kind of signal by playing this same episode, personal finance episode every week at exactly the same time. So I would hear it every time. But I ultimately did, you know, end up taking notes about it because I thought that the story was so telling about sequence of returns and what can happen after a long rally in stocks like we saw from 1982 or 1981, really, to 1999. So this show was the Bill Geiger, like, personal finance show. He runs Geiger wealth, it's a wealth management company in Washington, D.C. it turns out the show is from 2012, which I didn't realize at first, but as I was listening to it, I was like, when did. When was this recorded? Because it seemed strange, the timing of it all. But let me go over the story and you'll see why I was like, when was this recorded? While I was listening to it. So this was a story about a couple that came into his office. It turned out they came in 2012 into his office, but they had retired at age 65 in 2000. So just a couple months into 2000, they decided to retire. They had gone to their own financial advisor at that time. They had a million dollars. That's a lot of money in a retirement account. So they went to their financial advisor and they said, we want to be able to take out $50,000 a year. The financial advisor said, sure, no problem. That's only 5% of the million dollars. And this is again the year 2000. So for the prior 18 years, the S&P 500 had averaged about 20 or 21%, with dividends reinvested annually over that time. And we had just had the stock market boom at the late 1990s. You know, we had the triple Qs. The Nasdaq was up, you know, 86% one year. So we had these enormous gains, and this couple was just asking for 5%. And even if you look at the historical returns of the s and P500 and you. You ignore the prior 18 years, it still was averaging about 8% to 10% in that other time period. So these financial advisors felt confident that they could invest this portfolio and they could get them easily the 5% a year or the $50,000. Now, apparently, they did have a lot of their portfolio in the NASDAQ stocks, in the heavy growth stocks. I don't know what they were actually in because they didn't say on the episode, but this would not be unusual because all of us own the Mag 7. We own it right now in either the S&P 500 or we own the individual stocks, or maybe we even own the Mag 7 ETF. But we own all of these growth names because they have been such great performers for the last decade or sometimes more. So it's not unusual. Like I said about the people who were in the big drug stacks in the early through the 1990s into the early 2000s, we are very easy to understand with investing psychology. We like to own the stocks that continue to go up, because why wouldn't we? And we believe they will continue to do that forever and ever. So they start taking out the $50,000. But we had the big downturn in the Nasdaq, but even the S&P 500 in 2000 and then in 2001. But history would tell you, oh, it's only going to probably be two years of a downturn because we've never seen three consecutive years of downturn in the S&P 500. But what do you know, it was a third year. So 22, it was down again. If you were only in the Nasdaq, then you really got hit because I think it fell about 83% in those years. But the S and P, not as bad, but it was still pretty bad. So by 2003, they had taken out $50,000 a year. So that's three years, 150,000 off the million dollars. But because of the downturn in the stock market, their portfolio was now down to 497,000. Yes, that's what the sequence of return risks is all about. You're pulling out money at the same time the portfolio is falling. It makes it very difficult to get back because now your. Your balance is down to 497. So their financial advisor told them, you know, stay the course. This is three years down. We've never had four years down. And we didn't. Stocks did rally off of that, and The S&P 500 even made new highs in 2007, but they were still in retirement. They were still taking out $50,000 a year. So even though it hit those highs, that did help. But they were still taking out more money. So by the summer of 2007, they still only had 529,000 in that portfolio. And then unfortunately, we had the big sell off in the financial crisis 2008, 2009, and they were still retired and they still needed to take money out. And it really crushed their portfolio down to 237, 237,000 by 2009. And then when they came into his office at age 77, he said that they only had $184,000 left. So that's 12 years later, starting with a million dollars coming in with 184,000 at on the show which was filmed or recorded in 2012. I ultimately figured out after I listened to it several times the Bill Geiger said his fears that the next 10 years would be like the prior 10 years. Because now by 2012 your perspective had changed. You had been in the secular bear market with multiple big bear pullbacks for 12 years. And interestingly, 2012 was the end of the bear market. 2013 is the start of a new bull and we've been in that bull ever since. So we're now 13 years into this bull market. But he did say, and I wrote this down, this market cycle has me spooked. He said that in 2012. But I'm bringing up this and I wrote it down because it really stuck with me on timing and what your investing goals are and how over invested we can get in areas that are doing so well. So we all know as value investors that value has been out of favor since 2012. There's been little bits and pieces in there where you did get rallies, some small rallies in certain areas like the drug stocks rallied during COVID and finally seem to be going somewhere. But many of them have even given it back up again. We had bits and starts with the banks and then we had the banking crisis in 2023 which hit the bank stocks again. But the large cap bank stocks like JP Morgan, bank of America as I've recounted on, have seemingly broken out and look like they're in another new bull. They are are hitting new highs. Regional banks and community banks still are somewhat stuck though. But I'm still a believer that they will be breaking out sooner rather than later because we're 18 years into this bear market in the banks and they don't stay down for forever. But some of the lessons are good to know now because value is under invested now. We have had a mini rally where everybody's doing the quote, great rotation in the last four to five months, I would say back into the end of 2025. And we're starting to see some commodities plays which are tend to be value stocks as well coming to life like gold and the silver and the miners. But oil, except now with the Iran war, but before the war we still had an oil glut so prices remained depressed. Same with fertilizers. Prices were depressed. But that may all change now with the war. That remains to be seen on those areas. But that may just be temporary. Kind of like the Ukraine war price spike was temporary and that maybe those have totally hit the bottom yet to rally either. But historically we tend to see the value stocks once the growth is over. And do anybody, do you own them? That's the question. I tend to believe no. Even after a nice rally like we've seen with the gold and the silver miners, I don't think many people are actually in that trade. And they're still in the mag sevens, they're still in the growth technology plays. Some of those are still in in play as well. But everybody is still focused on what's worked the last 13 years. So that's maybe one of the biggest lessons from the dot com stock bust is that we become over concentrated in what has worked. I know people who are only in the s and P500. That's similar to people who were only in the NASDAQ by the end of the 1990s. And who can blame them? It was doubling in one year practically. So, you know, everybody thinks it'll go on like that forever. They don't think, hey, maybe the large caps will be a bust eventually and the small caps will rally. Or maybe I do want to be in some boring value stacks because the valuations look great and maybe something is turning around in their industries and sectors and their business. Nothing stays the same. So I wanted to finish up this podcast with a couple of Zach's number one ranks, strong buys with value scores of A. And these are recent additions just to give value investors, and if there's any growth investors listening to this podcast as well, some ideas of how to branch out. What what is looking good with the number one ranks, which should mean rising earnings estimates, right? That's why we have the strong buys. It doesn't necessarily mean that it has high growth, but the analysts are liking what they're seeing and hopefully something good is going on at that company. So I randomly went on Zach stock. We have a Zach's number one rank list on there. You have to be a premium member to look at it though. But I am, of course, so I'm sharing with you. I clicked on it. It gives all the number one ranked stocks and then it also gives the style scores and you can search by style scores. And so I did looking only for value scores of the A. And so there were quite a few. I had A number to choose from out of the whole list. Let's see how many are there on the number one ranks right now. The number one ranks can change daily. Oh, it's a little on the low side right now in the number ones. Only 203 number one ranked stocks right now and it can be as high as about 240. So this is on the lower side. But we have exited or almost are exiting earnings season now and I'm recording this on March 11th. So things are calming down in terms of changes being made to those earnings estimates, which is when you get the number one rank you get a lot of changes in it. So just taking a look again at the value scores and so I picked out three and these are some of these I've talked about on the podcast in the past. It's been maybe a couple of years, but now I'm going to take a little bit closer look, see why they have the number one rank, what's going on to give them the great rank again. But I'm going to start with the first stock which is in the auto sector, Magna International. I believe they're Canadian. Yes, Canadian. And they are a automotive supplier. So this was impacted by the tariffs, anything that was going on, on to Canadian imports and all of that was tariff related. But they do bodies and exteriors and structures, power and vision seating systems and then complete the vehicles it says. So that's interesting as well. But they are Global. They have 341 manufacturing operations and 170,000 employees and they handle all of the automakers. So it's not just like a GM thing or a Ford thing. They're doing BMW, Volkswagen, a bunch of just everybody basically. So looking at them, the stock sank. It sank for four years into 2025. And then we had Liberation Day and all of that. The tariffs went on. Then we got some certainty and we've seen the stock rally off of that. But it's pulled back here in 2026 on the Iran war and just general weakness in the overall market. But it is still trading with a forward P of 8.5. That's how, that's how cheap it got because earnings are also turning around. So 2025 earnings were up 5.9, but 2026 they're expected to be up 19% and then 2027 14.7%. So the auto industry was pretty much left for dead. It's still struggling here with high auto prices. People are having a hard time buying autos. So sales are still down, but it's just so cheap that there's still room to run basically. And now we are starting to see a little bit of a turnaround. It does go in cycles, so we're on the up cycle. In the auto sector, dividend is $1.98 a share, which is yielding 3.4%. They are very dividend friendly. So I'm liking all of this. It's, it's a value stack with, you know, some nice growth trajectory. Price to book is just 1.3. Price to sales.39. All of those are classic value. If I ran a classic value screen, I'm pretty sure it might show up in there. So Magna, let's just take a look, see how many analysts are raising here. Even one in the last week. Wow. So we had five in the last 30 days, four in the last 60 days, up for 2026 and then one in the last week. But we have a little bit decline in the overall sex consensus. 682. A week ago it was at 685. So whoever that is, that's raising was just a little behind everybody else maybe. I'm not sure why it dropped a little bit there even on the raise, but that's all up from 60530 days ago. So this is all the right trajectory. Things are looking much better for Magna. And then 2027 looking for 782. That's up from 703 in the last 30 days as well. So the turn is happening on some of these auto sector stocks and this stock is up off of the recent earnings surge. So at the beginning of February, the Stock went from $52 up to 68 and now it's, it's lost a lot of that back down to 58. So this is a buying opportunity. If you thought maybe you missed a lot of this rally in the auto stocks, you are given another chance right here. But they're still cheap otherwise. So I'm really liking Magna. It's ticker M as in Mary G. As in George A. Magna International. I included an insurance on here because value investors never really go wrong with insurance and it is a more of a defensive play. But we have talked about this one in the past. Allstate Ticker all. It's Property and Casualty. We love their commercials. Shares have soared over the last several years, but they're in a narrow trading range now since 2025. Kind of just up and down in between 180 and 220. Shares are trading at 205 right now, so they're a little off the recent highs, but they've beaten on earnings every quarter there and then. Let's just look. It is super cheap Forward P of 8.1, PEG ratio of 0.4. They do pay a dividend yielding right around 2% right now. But 2026, it does show earnings decline of 27%, but that's after a gain of 90% last year and then a little bit better, 2.8% in 2027. So, as I said, just because you get a number one rank doesn't mean there's earnings growth there. But it does mean the analysts are getting a little more bullish and looking at 2026. Two are higher in the last week with this one too. Seven are higher in the last 30 days and nine in the last 10, 60 days. So it did report earnings a while ago and the analysts are still raising estimates. So it was at 245830 days ago. Now it's at 2540. So even though that's a decline because they made 34.83 last year, it is going in the right direction. And the shares are cheap here. But that's also why you see them trading sideways, because we don't have the big earnings growth like Magna that's going to fuel a breakout in the stock. So if it pulls back some more, I would be even more interested in Allstate because I'm willing to be patient and kind of wait for those earnings to turn around even some more. But if I could get it cheaper, even better. Price to book is a 188 price to sales 0.8. All of this is classic value. So the insurance companies, yeah, I know everyone thinks they're boring, but this is what is in once growth is out. And if you owned it a couple of years now, it hasn't been a bad investment for you. Overall, it's had quite a rally here, like I mentioned, in the last couple of years, and now it's just kind of taking a timeout. Let's just see five years, what it's at. But always good to get on pullbacks and value investors can be patient as we wait for that. So over the last five years, it's actually beating the S P500. It's up 77%, but it's in, you know, the, like the last year it's up only 3.9%. The S&P 500, up 21 in that period. So this is where the underperformance is. But you do get the 2% dividend. So you've been around 5 and a half to 6% over the last year on Allstate, but that's all State A L L is a ticker. And then I picked out a retailer. It's not my favorite one because that had a style score of B. That's also a number one rank right now, but I'll talk about that one in a second. I'll just throw in a one with the rank B. Why not? But this one is Columbia Sportswear Ticker C, O, L M. And anything in retail has been struggling because of the tariffs, but it is a number one rank and it's got that A for value because it's trading pretty cheap. PE is at 16.3 right now and you know, any kind of pullback, you're going to get valuations to decline, price to book 1.77, price to sales 0.87. So this is all classic value. Pe, you know, classic I would look at 15 and under probably. But the classic value screen on Zach's looks at 20 and under so it would still show up for that screen. But it's been difficult with the tariffs going on. But the companies are adjusting. There's been some price increases in products, but you can see earnings are expected to decline 6.2% this year but rebound 16.9 next year. We have two estimates up in the last 30 days for this year and next and four in the last 60 days. We're looking for 346 now. It was at 3:30 just 30 days ago. This is what the Zack's rank starts to pick up on when there's a turnaround and it's noticing it before maybe the overall market does. And that's something to watch. This these shares are off of their recent February highs as well. They traded as high as it looks, around $65. They're down to 56. So you are getting it a bit cheaper. But concerns about the consumer are going to keep this stock probably on the low. So you really do have to have incredible patience with any kind of retailer right now. It does pay dividend yielding 2.1%. The these shares were trading near 5 year lows in 2025. This was on the tariffs. They have rallied a bit in 26, but they're coming back down again. So. So we'll see. I don't think you've missed your opportunity to buy in Colombia again. If the Iran war shakes up things with the consumer and those gas prices remain higher, retailers are going to suffer a bit. But keep it on your watch list. Columbia Sportswear, it's Got a good brand ticker, C O L M. And then the one that is one of my favorite on the retail side, that is also a number one right now, but it's got the B for value is Deckers, Deckers Outdoors, which is Ugg and Hoka shoes, but also accessories. It's been one of the top retailers for years. It had a sell off in 2025. It's kind of remained there because people are still worried about tariffs and like Columbia, the consumer. So earnings and then earnings have come down a bit. They're no longer double digits. So in those scenarios I have to get a former growth stock at a cheaper price. And right now, because the shares are going nowhere and they're at three year lows, the forward PE has come down to 15.3, but it still has a PEG ratio of 2.4, which is a little stretched because it's no longer doing double digits. So in 2025 earnings were up 30.2%. 2026, they're expected to be up but 8.5 and then 2027, just 6.4. Because it had such big growth, which with the Hoka and even the Uggs, but definitely with the Hoka. And it's hard for any brand to continue with 2030, 40% growth year over year over year. West Elm is one of the few that I've ever seen do it. And so Deckers is doing growth, but as the Hoka brand matures, it's just not going to do those 20% or 30 percenters anymore. And neither is Uggs, even though Ugg is still growing as well. But it's just going to be this slower growth. So I want to get it cheaper. That's maybe why it's a B on the value scores, because it's not down there yet on some of these indicators. And just looking at like price to sales, it's at 2.7, price to book, 5.7. So those are not classic values. And so if it breaks down and goes underneath this narrow trading range it's been in for the last year, then it could be even a better buying opportunity for Deckers. But management is good. The brands, Ugg and Hoka are still strong and still trending and still in trend. So I'm still liking it, but not quite as cheap as some of these others. So look around, look around at some of these value stocks because if growth, the growth rally peters out, as we've seen with the software stocks, for instance, or when we finally are in another secular bear, which yes, it will happen eventually when we go into that, that's usually when value stocks shine and good investors to avoid some, but you won't be able to avoid all of it. But some sequence of risk issues are going to have a more diverse portfolio so that you aren't hit quite as hard as what it would have been like in the dot coms if you only own the Nasdaq or you only own the drug stocks after 1990s rallies and into the 2000s. So keep those things in mind as you're planning your own portfolio. Talk to your financial advisor about these risks. If you are going to be tapping any of the money that you're saving in stocks or bonds or whatever the asset is, make sure you have a plan so that you're not caught like this retired couple at age 65 with a million dollars and then thinking that their retirement was pretty secure based on historical returns of the stock market and then facing these downturns at just the wrong time. So that's a scary podcast. Sorry for scaring you, but it's good to have the lessons from the.com and the Drug rally era. Let's throw them in there too so that we can learn from what has happened to others. So let me recap the stocks again. We had Magna Ticker mga. I like the auto stocks and the growth in the earnings is looking good for many of them. All state it's not bad to own some insurance as Warren Buffett and Berkshire Hathaway can tell you with Geico and various other insurance companies they own Allstate Ticker all Columbia Sportswear. On the retail side it's pretty cheap, but retail has always been tricky. Ticker C O L M is the ticker there. And an added bonus, even though it's got a B for the value score and it's not as cheap as these other three deckers, HOKA and Ugg. It's got good brands. Ticker D E C K. So as always I aim to bring you some value stack every week. Be sure to subscribe on our YouTube channel. Go to Zach's.com or go to Zach's podcast in the Tool or the search bar there on YouTube. Find our channel there. Just subscribe. There's a lot of podcasts on that channel so you can get ETF Spotlight, you can get John Blanks and Shirazmians that look at the economy. You're going to get the value. You won't get the market edge though. That's on our normal video channel on Sachs Investment Research. So just subscribe to both channels and you'll get everything our videos and our podcasts. You'll also find us on Apple, Spotify, Amazon Music, anywhere you find podcasts. And I'll see you again next week with some more Value Stocks this material
- [41:38]
A
is being provided for for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this podcast without seeking the services of competent and professional legal, tax or accounting counsel. Publication and distribution of this podcast is not intended to create and the information contained herein does not constitute an attorney client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assume that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date herein and is subject to change without notice. Any views or opinions expressed may not reflect those of Zacks Investment Research as a whole.