Investors should note that deep value investing is where you’re really looking at companies which are “horribly out of favour” though if the stocks can turn around, you can get some very good performance.
For Jeroen Bos investment director at Church House Investment Management, and lead fund manager of the CH Deep Value Investments fund, the return-to-volatility environment is ripe for opportunities for the value investor.
He says there are a number of value investing strategies, where managers look at low price in relation to book value, a low earnings multiple, a high dividend yield, management buying stock and corporate buy backs.
Bos, who last week marked the publication of his second book edition of Deep Value Investing explains that a good place to start is the price chart of the stock in question.
“I check that in previous periods, the share price was at materially higher levels and that the share price is, now let’s say at 50% or lower from its previous high. I don’t like to look at value stocks where the share price chart looks pretty horizontal, this to me suggests a potential “value trap”.
“I like to see a steep downward move in the share price and recent (bad) news on why the share price has tanked. It is those situations that I find most interesting. I will then have a closer look at the company, and my starting point will be the latest released results.
“I like to establish some kind of “margin of safety”. If I can buy £1 for 50p then on that basis I become interested in the company. It will now take some further investigation to establish if the current issues affecting the company are permanent or due to cyclicality, legal issues etc.”
Three stocks he finds interesting are Enteq Upstream, Hydrogen Group and Lamprell.