Newsletter - January 11th, 2025 - T Rowe Price (1 of 2)

Dear Reader,

Attached is a recent list of stocks that passed value screens (e.g. below net current asset value, below tangible equity, etc.) but don’t meet our investment criteria - and our reasoning.

This may help you avoid some ‘value traps’, and stocks that aren’t sufficiently attractive compared to opportunities available today.

For reports of stocks that pass our quantitative and qualitative standards:

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David Giroux - T Rowe Price

David Giroux is an investment manager at T. Rowe Price. He takes a contrarian approach to invest opportunistically across stocks and bonds:

3:00 US overvaluation

Giroux's main assertion is that most US stocks are overvalued.

Though technology companies, which constitute a large proportion of the S&P 500 index, deserve higher multiples (due to high returns on capital and limited reinvestment needs), the overall market appears overvalued on several measures.

For example, "average companies that aren't traditional growth" are valued at 19x earnings vs. 14x in previous years (6:00).

4:30/8:45 Five-Year IRR

Giroux's "north star" is to calculate the expected return over the next five years - making assumptions for growth rates, dividends, and future multiples. His conclusion is that, even with optimistic assumptions, expected returns for US stocks may not surpass 5%/year.

9:30 Fixed Income

Most bonds also appear overpriced (tight spreads relative to treasuries) - except for 3 to 5-year tenures.

13:30 Disappointment likely

Nothing goes up forever, and reversion to the mean is more likely than not. According to Giroux, there's a high likelihood of disappointment in US stocks one year from now. (19:00)

15:00 GARP Value

Stocks growing at moderate rates are selling for reasonable earnings multiples - relative to their historic relationship with the market.

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Giroux may be constrained by size to such unattractive options - but small investors have dozens of bargains to choose from, which we cover in our reports:

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Have a great week!