Investment strategy - Value Investing
Investing in value stocks is fundamentally different from investing in the growth companies. Stocks of growth company will rise up impressively during bull market when value stocks will be flat or, at best, will move up very gently. Value investing strategy is more defensive investment strategy.
However, advantages of value stocks shows up when bear market comes – indexes starts to decline. That will be the time when value investing will be successful: as the overall market drops down and defaults will split fast as a bad smell, value companies will continue steadily. Their stock prices can also significantly decline but will move much less than market average.
Value stocks should be chosen for investment according to such ratios as the P/E ratio, EV/EBITDA ratio, P/BV ratio and dividend yield. However, the "value investing" strategy has more to do with search of stable companies - those that generate stable cash flows, pay high and steady dividends, has a portfolio of stable assets, than a 'value/market price' ratio.
Usually value investments are companies from tobacco and alcohol manufacturing, telecommunication sectors.