During the next few months, Dewey rebalances the Purity Fund to reflect his fundamental active investment process. Dewey and Sardar meet again to discuss potential new investment opportunities for the fund. Sardar recommends the purchase of AZ Industrial, which she believes is trading below its intrinsic value, despite its high price-to-book value (P/B) relative to the industry average.
Q. Which investment approach is the most likely basis for Sardar’s buy recommendation for AZ Industrial?
A.Relative value
B.High-quality value
C.Deep-value investing
Solution
B is correct. Dewey has developed a fundamental active investment process for the Purity Fund that emphasizes financial strength and demonstrated profitability. High-quality value investors focus on companies’ intrinsic values that are supported by attractive valuation metrics, with an emphasis on financial strength and demonstrated profitability. In their view, investors sometimes behave irrationally, making stocks trade at prices very different from intrinsic value based on company fundamentals. A is incorrect because investors who pursue a relative value strategy evaluate companies by comparing their value indicators (e.g., P/E or P/B multiples) with the average valuation of companies in the same industry sector, in an effort to identify stocks that offer value relative to their sector peers. AZ Industrial is trading at a high P/B relative to the industry average, which is contrary to relative value and suggests that the relative value approach was not the basis for Sardar’s buy recommendation. C is incorrect because a deep-value investing approach focuses on undervalued companies that are available at extremely low valuation relative to their assets. Such companies are often those in financial distress, which is not reflective of financial strength or demonstrated profitability. Therefore, Sardar’s buy recommendation was not based on a deep-value investing orientation.
我可以理解relative value的对比benchmark一定是行业平均而不是和自己过往相比是吗？所以出现了P/B比行业平均高还是建议买入的话，只可能是high quality value了？