A New Way to View "Value Investing"

The ongoing bull market is a bit mystifying -- the economy is still pretty weak -- but given the euphoria, many traders who view themselves as "value investors" probably feel pretty good about their investments at this moment. Still, many beaten-down stocks are missing an important attribute and are therefore dangerous. Some investors might want to sell those stocks and put their money in ones with stronger long-term outlooks.

It's time to rethink the idea of "value," contemplating a whole different proposition of positive actions and solid returns. Let's consider values investing.

These are not bargains
Given Best Buy's (NYSE: BBY  ) year-to-date stock price recovery, many investors have considered it a proverbial beaten-down value stock and bought in. However, when such companies struggle to regain competitive advantage, how much good can they do in the world around them?

So far, there's no real sign that an actual turnaround at Best Buy is forthcoming, despite the mind-boggling 170% increase in its year-to-date stock price.

Best Buy's making some promising moves. For example, the retailer recently nabbed NCR executive Christopher Askew to head up and spiff up Best Buy's Geek Squad service. While that human touch is a sensible idea to bring back competitive advantage from threats like Amazon.com (NASDAQ: AMZN  ) , whether initiatives like these will work after the brand's beating is not a foregone conclusion.

RadioShack (NYSE: RSH  ) is in even worse shape. The stock's been volatile to say the least, and although the now-penny stock reached a high of $4.28 at one point, it has now retreated by 39% as negative issues have become more evident. If you look at its one-year chart, though, it's obvious some investors have at times considered it a promising "value."

I propose a different kind of "value investing." Let's consider values investing.

Surprise: The price may be right
Many investors shy away from certain premium-priced stocks because these seem like the polar opposite of the traditional idea of "value."

There's another way to look at such "special situations," though. Many supposedly premium-priced stocks have values going for them. This often lends a tremendous amount of competitive advantage, not to mention goodwill, which is literally included on a company's balance sheet as an intangible asset.

Sometimes "intangible" assets like good employee relations, amazing brands, and initiatives that help the world are the best and most overlooked sources of value a company has.

Amazon's often considered a recklessly overvalued spendthrift. However, as the future unfolds, it's likely we'll realize that the company's huge growth was difficult to predict -- and much larger than anyone imagined. It's an innovative company, and it touches lives in many more ways than people think.

Recent news that Amazon will hire 5,000 employees with competitive pay and benefits as well as 2,000 additional part-time workers is an amazing boon to an economy in which many people are struggling. Instead of cost-cutting through a mass layoff, Amazon is investing in a mass hiring. We need more companies to do that instead of obsessing over short-term profitability while sitting on their hoarded cash.

Giving back to the economy
Plenty of companies have initiatives that are more growth-oriented than sad or even destructive.

Apple (NASDAQ: AAPL  ) has made some recent and interesting moves that are good for our country, creating some jobs for Americans. It pales compared to Amazon's big hiring news, but every bit counts. Apple has pledged $100 million for American Mac production, and according to sources last spring, it's spreading the work around. The main production facility will be in Texas, and some components will be made in Illinois, Florida, Kentucky, and Michigan.

I can't get enough of Costco's (NASDAQ: COST  ) stakeholder-friendly business. BusinessWeek recently shared a quote from CEO Craig Jelinek in an article about the warehouse retailer's secret sauce:

I just think people need to make a living wage with health benefits. It also puts more money back into the economy and creates a healthier country. It's really that simple.

Yes. It really is that simple. Some of the ways too many corporate management teams (and investors) view "bolstering value" aren't -- they're destroying it.

Paving the way to a stronger future
Some corporations build a map to true value for the long term, creating paths leading to healthy, vibrant destinations. That's a win for everyone, including investors. Companies and businesses of all kinds require a strong economy in which to survive. The strongest companies with the most solid, visionary managements are obviously helping reverse the damage of some of the supposed "value stocks" that could, quite frankly, stagger and burn money for ages and eventually go to zero. That's how investors get burned, too.

Bankruptcy helps no one. Nor do corporate managements that get stuck like deer in headlights and hold on to their cash like terrified misers.

However, I have a nice surprise. Apple actually is a "values" stock exhibiting traditional value stock attributes; this is one heck of an opportunity for investors who are still too leery of some higher valuations despite high-quality visions.

Recent pessimism knocked Apple's shares down from previous lofty highs, and its forward price-to-earnings ratio of 11 and PEG ratio of 0.65 is a ridiculous no-brainer. Apple is most certainly not struggling to survive. It's an example of when the very best opportunities give the best of both worlds.

Some of the most valuable companies may come with high price tags, but as they boost our economy, foster stronger consumer spending, hire more people, and help heal the economy, they'll bolster investors' portfolios, too.

Granted, we can't buy premium-priced stocks without judging their long-term prognosis and competitive advantage. We should look for the greatest companies that are doing and can do much good in the world, and occasionally consider the fact that they could be better values in many ways. That's values investing. Validating and supporting the value-destroyers leads investors -- and their portfolios -- nowhere.

It's incredible to think just how much of our digital and technological lives are almost entirely shaped by just a handful of companies. Find out "Who Will Win the War Between the 5 Biggest Tech Stocks?" in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged by the five kings of tech. Click here to keep reading.

Check back at Fool.com for more of Alyce Lomax's columns on environmental, social, and governance issues.


Read/Post Comments (6) | Recommend This Article (17)

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  • Report this Comment On August 12, 2013, at 6:14 PM, ScottPletcher wrote:

    Ms Lomax may believe in socialism, but I don't want the companies I invest in hiring people just to (artificially) create jobs -- companies should only hire people when they add value.

  • Report this Comment On August 12, 2013, at 9:22 PM, dcflipflop wrote:

    To me, value investing means buying companies that DO make money at a bargain price. Best Buy and Radio Shack are not making money, so buying them is more of a gamble than a great value. Ironically, Apple is a value buy given the low P/E and huge pile of cash they have.

  • Report this Comment On August 12, 2013, at 11:22 PM, harmonyjoe wrote:

    Mr. ScottPletcher has a strange notion of what Socialism is all about. This would be the first time I've ever heard of a private company practicing socialism. If he were to do some research I believe he would find that Costco(I have to believe that's the company he's alluding to) Isn't hiring people simply to artificially create jobs. Any company that did that would not be very successful and I don't believe that description very well describes Costco. I have to believe that if Costco is hiring people it's because they believe they will add value to their business. And if they hire them at good salaries it's because they believe paying good salaries will make those people better employees and better consumers. Something a lot of American companies have forgotten.

  • Report this Comment On August 13, 2013, at 6:10 AM, JadedFoolalex wrote:

    "We need more companies to do that instead of obsessing over short-term profitability while sitting on their hoarded cash."

    Companies are still sitting on their "hoards" of cash because their "markets" aren't healed yet!!! So while it's all nice and swell to berate businesses for not hiring more people, selling into a recession plagued market like Japan or Europe or even slowing China is a bigger recipe for disaster, no?

    Also, using Costco as an example is a bit off kilter! A business that charges it's customers to be a member already has a built in profit margin. Any other shopping the customer does is icing, so your logic is somewhat skewed using this company!

  • Report this Comment On August 13, 2013, at 2:30 PM, todamo13 wrote:

    Well, I guess if your idea of value is enriching execs and shareholders only, then outsource away and let the country continue to rot. But hiring Americans to make things in America, people who can then spend the money they make in America seems like a pretty important thing to do for the health of our country.

    And to be even more 'socialistic', if the companies hiring Americans actually pay those employees a decent wage, with decent benefits, which those employees can live on, then those employees just might have money to spend on things that the companies make-- thus increasing demand. Crazy, but true. I think Henry Ford (a renowned Socialist) used that concept.

  • Report this Comment On October 07, 2013, at 5:59 AM, thidmark wrote:

    It took an outsider to get Apple to pry open its cash hoard.

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