It should go without saying that a market that continues to grow frothier can eventually turn investors off (as they consider it to be too expensive). But it can also have them looking outside those stocks that have already rallied strongly for better bargains, suggests Taesik Yoon, CFA and editor of Forbes Investor.
Value stocks had lagged behind up until the last couple of months. More importantly, should corporate profits overall deliver the kind of recovery now implicit in the market’s premium valuation, I believe it’s small-cap value stocks that stand to continue benefiting the most in terms of upside.
And as they comprise the majority of the current recommendations in the Forbes Investor, I think the same is true for our portfolio as well. This has me optimistic in our ability to outperform in the new year.
Deluxe Corporation (DLX) — with a market cap of $1.22 billion and a dividend yield of 4.1% — has seen its stock greatly underperform in 2020.
The shares are currently trading at a ridiculously low forward P/E of just over 6 times its consensus earnings expectations for 2021 (of $4.69 per share) as a result of it.
And while the provider of checks and other business solutions was hit much harder by COVID-19 due to its significant exposure to the small and mid-sized business market — which really took it on the chin during the lockdowns — and the amount of leverage the company employs, DLX has done a fantastic job of managing through this major economic headwind.
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This is clear from the much better-than-expected post-pandemic profit performance and free cash flow production that it has turned in, as well as the significant amount of new business won during this span.
More importantly, with this order activity likely to have DLX exiting 2020 with a strong backlog of business, I’m optimistic the company’s operational outperformance will continue in the new year and finally have its stock moving meaningfully higher.