'Today Keurig Dr Pepper is valued at an all-time low'
On the other hand, the company has strong growth potential related to the upward revision of earnings and the balance sheet review
3' min read
Key points
3' min read
Sebastien Mallet, portfolio manager at T. Rowe Price, explains the importance of value stocks in building a well-balanced portfolio in the current market environment.
Uncertainty related to US tariff policy seems to have put the focus back on value stocks at the expense of US growth. Will this reversal last long?
.The recent rally in value stocks reflects a structural change in the markets. Trump's policies, rising inflation and geopolitical fragmentation have disrupted supply chains and put growth sectors under pressure. In contrast, value sectors, such as utilities, consumer goods and healthcare, offer defensive characteristics and upside potential in this scenario.
The European side is attracting the interest of investors. What is your view? What impact could the recent commitment to increase defence spending have?
The uncertainty over tariff and tax policy in the US contrasts with Europe's renewed fiscal commitment, particularly in the infrastructure and defence sectors. Nato's commitment to increase defence spending could act as a powerful economic boost, supporting many value sectors, such as industry. Inflation and rising rates further support value, particularly in the financial sector. European banks, after recovering from negative rates, posted a surge in earnings, with 67% growth since the pandemic versus just 8% for their US counterparts. With the financial sector accounting for a large share of European indices, the region is set to benefit from higher rates for longer.In addition, global investors' attention is shifting away from tech, favouring sectors such as energy, materials and industrials, where Europe and other markets have greater exposure. As the global capex increases, they are set to outperform.
What role should the value component play in an asset allocation?
It can play a crucial role. Value stocks offer balance and resilience, especially in inflationary and high interest rate environments. Asset allocators seeking diversification need to re-evaluate their exposures to avoid excessive concentration in mega-cap tech stocks. In this context, increasing the allocation to value is essential to build a more balanced portfolio.
There is talk of a risk of stagflation for the global economy. Is this a conceivable scenario? How do you manage this risk?
Stagflation is a plausible risk in the current environment. Political uncertainty in the US is weighing on confidence and increasing the likelihood of inflationary pressures against a backdrop of slowing growth. We manage this risk through a disciplined, bottom-up approach. We identify the most attractive value opportunities in all sectors and regions. We combine 80-100 high conviction ideas into defensive, cyclical and deep value categories, allowing us to adapt to various economic environments. We closely monitor valuation spreads to identify the most attractive opportunities, with rigorous fundamental analysis to assess business models and earnings resilience.
