Three Stock ETFs With More Than Price Momentum Alone

The nature-nurture debate may be one of the most popular battles in psychology. In financial markets? One can make the case for an octagon match between “value” and “momentum.”

Value-oriented investors tend to pursue bargains. They look at price-to-earnings (P/E), price-to-book (P/B) and price to-sales (P/S) ratios. They evaluate cash on corporate books after capital investments – a metric known as free cash flow. And when value investors worry about a firm or an industry’s financial well-being, they look at debt levels.

Momentum-minded men and women often keep things simpler. Is a security rising in price at a faster rate than a comparable asset? If so, it may be more likely to continue moving at an accelerated pace for the foreseeable future. And when might a change in price direction occur? It might take place in conjunction with price deceleration and/or trendline breaches – trendlines that are derived from simple moving averages or exponential moving averages.

In the current bull market, nearly all valuation metrics suggest that U.S. stocks are extremely expensive. On the other hand, most technical trends emanating from price movement are decidedly favorable for believers in the rally’s “legs.” It follows that, even though the median stock in the NYSE Composite is sporting the highest P/E and P/S ratios ever recorded, the momentum-based community has not been deterred from a pursuit of portfolio gains. Support for momentum-based price movement can be seen in the “higher lows” achieved since October. Additionally, the current price of the index currently resides well above a long-term trendline.

NYSE Composite 9 Months

It may be extremely difficult to unearth genuine bargains in the late stage bull for U.S. equities. Nevertheless, foreign and global stock ETFs may be less expensive on a relative basis. What’s more, several of them are demonstrating near-term relative strength when compared to the entire universe of stock ETF possibilities.

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ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser ...

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