June 4, 2018
'Reattachment' stocks have begun to outperform The dislocation of stock prices from underlying profitability since the financial crisis is well known. However, their reattachment is finally in full swing. [more]
PROD0000000000469956 1 | June 4, 2018Thematic Research This is an excerpt of Thematic Research: Wall Street's dislocation gauge , published on June 4, 2018. June 4, 2018 Wall Street ʹ s dislocation gauge 'Reattachment' stocks have begun to outperform The dislocation of stock prices from underlying profitability since the financial crisis is well known. However, their reattachment is finally in full swing. Stocks that were unfairly punished by the market have begun to outperform. After years in the wilderness, these hidden gems have returned 55 per cent, double the broader market, since bond yields bottomed in 2016. And with a significant fundamentals gap to close, these stocks appear set to continue their run. What do we mean by dislocation? First, we look at the dispersion of returns on equity for S&P 500 stocks, that is, the extent of RoE variation between companies. We then compare this dispersion with that of stock market returns. If company RoEs show considerable variation, so too should market returns. Yet, our dislocation gauge tells us that RoE dispersion is much higher than stock price dispersion. In other words, investors are paying similar prices for very different stocks. But as bond yields rise, this dislocation is contracting. Our report identifies 74 stocks that could benefit from further normalisation and a further 76 stocks that could be hurt. In effect, this is a 'value'-type justification fora momentum-based strategy and highlights the benefits of a blend. For important disclosure information please see: https://research.db.com/ Research/Disclosures/Disclaimer Authors www.dbresearch.com Luke Templeman +44(20)754-17373 firstname.lastname@example.org Jim Reid +44(20)754-72943 email@example.com Sahil Mahtani +44(020)754-51552 firstname.lastname@example.org Deutsche Bank Research Wall Street ʹ s dislocation gauge 2 | June 4, 2018Thematic Research © Copyright 2018. Deutsche Bank AG, Deutsche Bank Research, 60262 Frankfurt am Main, Germany. All rights reserved. When quoting please cite “Deutsche Bank Research”. The above information does not constitute the provision of investment, legal or tax advice. Any views expressed reflect the current views of the author, which do not necessarily correspond to the opinions of Deutsche Bank AG or its affiliates. Opinions expressed may change without notice. Opinions expressed may differ from views set out in other documents, including research, published by Deutsche Bank. The above information is provided for informational purposes only and without any obligation, whether contractual or otherwise. No warranty or representation is made as to the correctness, completeness and accuracy of the information given or the assessments made. In Germany this information is approved and/or communicated by Deutsche Bank AG Frankfurt, licensed to carry on banking business and to provide financial services under the supervision of the European Central Bank (ECB) and the German Federal Financial Supervisory Authority (BaFin). In the United Kingdom this information is approved and/or communicated by Deutsche Bank AG, London Branch, a member of the London Stock Exchange, authorized by UK’s Prudential Regulation Authority (PRA) and subject to limited regulation by the UK’s Financial Conduct Authority (FCA) (under number 150018) and by the PRA. This information is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. and in Singapore by Deutsche Bank AG, Singapore Branch. In Japan this information is approved and/or distributed by Deutsche Securities Inc. In Australia, retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any decision about whether to acquire the product.