A structural shift is occurring in consumer behavior where spending on experiences is increasing. People want to belong to a community and share their experience, which is reflected in the vibrant growth rates of social media networks. In contrast to these growth stories, there are brick-and-mortar companies that are exposed to work- and capital-intensive businesses that will take much more time to benefit from an economic turn-around. The strategy is benefiting from the increasing of the gauge.
US stock indexes have hit record levels, but less than 6% of companies have reached a 52-week high. The US reporting season ends with published numbers that are better than expected. One might argue that the market is expensive and that there is no value left—but we only partly agree!
We contend that companies that have a proven business model and who can generate EPS growth—while facing the “new normal”—deserve a higher price. Contextualizing all that may help investors to avoid value traps.