How to Find Cheap Stocks in a Hot Stock Market
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What is the episode about and who is the guest Wall Street Journal reporter?
Here's your Money Briefing. I'm J.R. Whelan at The Wall Street Journal in New York. As stock markets reach record highs, you might not think finding cheap stocks is easy, but it can be. And a Wall Street Journal markets reporter will tell us where to find them. First, some money and market news you should know. Looking for a pay raise? Try switching jobs. Economists say the reason workers' pay is rising at a very slow pace, even while the unemployment rate hovers at historic lows, is that not enough people are moving to new jobs. Forty percent of wage growth over the average U.S. career comes from jobs switching rather than experience or skills. The Census Bureau says about 6% of U.S. workers switched jobs in the first quarter of 2018.
That's down from 10% at the end of 2009. So why the slowdown in job switching? Well, economists say workers have shown increased caution in the wake of the financial crisis as well as sweeping changes in the economy, including globalization and new technologies that some workers fear would require new skills. And Jack Frost will be doing a little less nipping at noses this winter. Natural gas prices jumped during the frigid start to November in many parts of the U.S., but forecasts for a relatively mild winter to follow send prices down nearly 5% on Monday.
What recent job and market headlines set the scene for this discussion?
Natural gas prices are also being held down by supplies that are 15% above this time last year, and analysts say the strong supply has caused recent price rallies to fall apart.
Value stocks have been pushed to the sidelines as Wall Street is back to racking up record closes. But now shares of banks and manufacturing companies are making a comeback. But is this their time to shine or just a brief moment in Wall Street's spotlight? Let's bring in Wall Street Journal markets reporter Michael Worsthorn with some details. So, Michael, first of all, what makes a stock a value stock?
So typically value stocks are defined as companies that are cheap. And you figure that out by looking at its price to book value or its price to earnings ratio and comparing it to, say, the average stock in the S&P 500 or others. So companies that have that appearance of being cheap. tend to have, say, some actual assets such as manufacturers with factories and whatnot. If they're trading below their book value, below their net worth, they would be deemed a value stock then.
Is it just banks and manufacturing companies that make up the S&P 500's value index?
Those are the majority of the companies. I mean, banks are, by and large, one of the The biggest constituents of value stocks, industrial stocks, are another big group. You do have some healthcare companies. And that value definition can stretch multiple sectors. So you even find value within the technology sector, say, among some of the manufacturers there. An IBM, for instance, would be considered more of a value stock than certainly a growth stock. And that's a technology company as well as a manufacturer.
When did investors most recently start to pour money into value stocks?
So you started to see the shift in September. A number of things started happening then in the sense that investors were a lot more at ease with the market conditions and they were more willing to take risk. So one of the areas they started to look was just sort of where can I get the most bang for my buck and where do I see the best value in the stock market in terms of appealing prices? And investors started to see value stocks. So that was the financial sector, industrial companies. And you even saw some movements saying within health care as well as energy stocks, all those being areas where you could find value, all of them started to rise. And they've had pretty decent performances now over the last three months.
It's been really hard to find bargains in this current Wall Street environment.
It has been. And a lot of that has to do with the bounce back we had from that fourth quarter sell off. If you look across the S&P 500, a number of the most of the major sectors, I believe, without with the exception of energy, have have have had double digit gains so far this year.
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