Was going back and forth with value investors on a different medium and I have came to this prediction.
I don't think value stocks with low P/E that pays a dividend will be roaring back to their original price point even after Covid 19. I do believe that these stocks will be paying a higher dividend (meaning stock price will be lower vs before) even if their profits return to pre-Covid levels.
My reasoning is that due to Covid 19, global pandemic is now a NEW RISK introduced to the market. This risk attacks specific sectors extremely hard, like travel, entertainment, energy, and dining. Prior to Covid, those stocks were considered bread and butter value stocks with low P/E and low risk. Tech however were always considered to be riskier but with more upside than value stocks.
This pandemic however flipped the script. We can see that the only thing pandemic has done is for tech companies to make even MORE money than before. This means going forward, the newly introduced risk of potential future global pandemics has reduced risk for tech and INCREASED risk for value companies. A lot of people think the transition to tech is temporary but in my opinion the transition is just reassessing risk in equities. The thing about this is that because techs usually have higher multiplier for reward, any small reduction in risk amplifies asset prices to keep up with the potential reward, hence we see bubble like transitions. The flip side is also true, because value stocks's life line is low risk, any increased amount of risk amplifies down in its value proposition.
What do you guys think?
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