This way of picking value stocks has actually worked — and Berkshire Hathaway screens the best
Amazon.com’s earnings surprise is the story of the day, pushing even the jobs report into second billing. More on that in a second.
But the broader story of the markets is unchanged. Interest rates are climbing, not just in the U.S. but globally, as seen in the Bank of England’s second rate increase in as many decisions and the hawkish language coming from European Central Bank President Christine Lagarde on Thursday. That’s going to be a difficult environment for growth stocks that thrived in the easy money, low interest-rate era.
“As rate hikes remain the key driver of markets this year, we expect value to continue to outperform in 2022 with growth stocks underperforming shortly before and in reaction to rate hikes and then recovering lost ground afterwards,” says Joachim Klement, a strategist at the U.K. broker Liberum.
But what’s the best way to pick value stocks? Using price-to-earnings hasn’t worked over the last 20 years in the U.S., and particularly not in the last decade. And since 2000, buying the highest-yielding stocks each month has generated virtually no outperformance over the lowest yielding stocks, says Klement.
Price-to-book, however, hasn’t done as badly. Value stocks picked using price-to-book criteria have underperformed by less than value stocks based on price-to-earnings, during the financial crisis and again in the COVID-19 crisis. And since the vaccine news in November 2020, low price-to-book stocks have been outperforming, particularly in December and January.
| Company | Ticker | FY2 cash flow yield | FY2 P/E | FY2 dividend yield | Historic price-to-book |
| Berkshire Hathaway | BRK.B, |
0.0% | 24.3 | 0.0% | 0.0 |
| Lincoln National | LNC, |
18.5% | 6.3 | 2.6 | 0.6 |
| Citigroup | C, |
0.0% | 7.8 | 3.5% | 0.7 |
| Viatris | VTRS, |
21.4% | 3.9 | 3.7% | 0.8 |
| Molson Coors Beverage | TAP, |
13.7% | 11.8 | 3.2% | 0.8 |
| Kraft Heinz | KHC, |
8.5% | 13.8 | 4.5% | 0.9 |
| Invesco | IVZ, |
18.9% | 6.7 | 3.5% | 1 |
| Loews | L, |
0.0% | n/a | 0.0% | 1 |
| American International Group | AIG, |
21.8% | 10.5 | 2.5% | 1 |
| Carnival | CCL, |
23.7% | 10.1 | 0.0% | 1 |
| Data: Datastream |
The cheapest S&P 500 stock by historical price-to-book (other than those with negative numbers) is none other than Berkshire Hathaway BRK.B,
The insurer Lincoln National LNC,
The buzz
U.S. jobs numbers completely surprised economists. The U.S. added 467,000 nonfarm positions in January, when some feared negative numbers, while the unemployment rate ticked higher to 4%. Average hourly earnings have climbed nearly 6% over the last 12 months.
Amazon.com AMZN,
Amazon “once again showed why they are the best game in town by a wide margin, topping consensus’ operating income projections,” said Daniel Kurnos, an analyst at Benchmark Research, who said e-commerce was underwhelming but not the huge miss many feared, while revenue at cloud provider AWS surprisingly accelerated, and the company broke out advertising revenue for the first time.
By one estimate, founder Jeff Bezos is set to see his personal wealth rise by some $20 billion as a result.
Social-media companies Snap SNAP,
The markets
Stock futures lost luster after the surprising strength in jobs numbers. The Nasdaq-100 NQ00,
The yield on the 10-year Treasury TMUBMUSD10Y,
Top tickers
Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.
| Ticker | Security name |
| AMZN, |
Amazon.com |
| FB, |
Meta Platforms |
| TSLA, |
Tesla |
| GME, |
GameStop |
| AMC, |
AMC Entertainment |
| SNAP, |
Snap |
| NIO, |
NIO |
| AAPL, |
Apple |
| AMD, |
Advanced Micro Devices |
| XELA, |
Exela Technologies |
Random reads
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