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Is 2017 a Replay of the 1960's Nifty Fifty?

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  • (0:30) - Nifty Fifty: Secular Bulls Of The Past
  • (5:45) - Lessons To Learn From The Nifty Fifty
  • (9:00) - Tracey's Top Stock Picks: Fizzled Out Growth Stocks
  • (16:10) - Episode Roundup:

Welcome to Episode #64 of the Value Investor Podcast

Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio service, shares some of her top value investing tips and stock picks.

The growth stocks are still on a rampage, with FANG, the biotechs and the semiconductor stocks soaring in 2017.

A lot of people in the media like to compare this market with the late 1990s dot-com era but Tracey thinks it more closely resembles the late 1960s and early 1970s bull market.

And for value investors, that means having patience.

The Rise of the Nifty Fifty

In the 1960s, growth stocks were also all the rage with investors jumping into a group of about 50 stocks that took on the popular name “The Nifty Fifty.”

These were considered blue chip stocks where nothing could go wrong.  Investors were willing to buy them at whatever valuation in order to get their innovation and growth. Sound familiar?

By the time of the 1972 bear market, the group was trading with an average valuation of 50x.

But then, these growth stocks fizzled, and the stock market along with them.

Today, investors are willing to pay a high price for many of the cutting-edge growth stocks. But some are already fizzling.

Could the fizzling growth stocks be value stocks? Or are they value traps?

5 Growth Stocks That Are Out of Favor

1.     Chipotle (CMG - Free Report) shares have fallen 56% over the last 2 years. The PR issues it faced in late 2015 haven’t yet abated. The shares are no longer the darling of Wall Street. But is it a value at this level?

2.    Ulta (ULTA - Free Report) shares are down 20% year-to-date as the analysts are concerned it’s going to be Amazoned. It once traded as high as 35x earnings and is now at 23x. Is it a value?

3.    Under Armour (UAA - Free Report) was once one of the top growth stocks. It was expected to take the mantle away from Nike as the top apparel sportswear and shoe maker. But shares are down 43% year-to-date. They once traded near $50 and are now around $16. Is it time to get in?

4.    General Electric (GE - Free Report) is trading at multi-year lows with shares down 27% in 2017. Wall Street has turned its back on this once “sure thing” blue chip. It trades with a forward P/E of just 15.3. Should value investors be interested?

5.    Disney (DIS - Free Report) had been flying high for years as its movies have dominated the box office, especially the Star Wars franchise. But shares are down 10% over the last 2 years, underperforming the overall stock market. They used to trade around 20x earnings but now trade at just 15.3 times. Is this a buying opportunity?

While many of the Nifty Fifty companies are still around and trading on the exchanges, such as Walmart, Coke and IBM, quite a few are now defunct or a shadow of their former selves including Schlitz Brewing, Polaroid and Eastman Kodak.

Additionally, after the bear market of the 1970s, it took years for some of the Nifty Fifty companies to again hit their pre-bear highs.

That’s a reminder for investors that, in the end, valuation does matter.

What else should you know about finding value in the fizzling growth stocks?

Tune into this week’s podcast to find out.

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