In a volatile stock market, a number of shares have fallen into traditional value territory. But are these opportunities or potential traps?
The key to figuring it out is looking past the short-term noise. And there are a couple of names that look interesting to me right now.
Auto Trader
Artificial intelligence (AI) fears have been weighing on Auto Trader (LSE:AUTO) shares recently. And the stock is down 19% since the start of the year.
The firm’s key strength is its platform. But part of the concern is that buyers might be able to bypass this entirely.
How should investors think about this risk? Comparing it to other platform businesses might be a good way to go.
Airbnb is relatively immune to the threat of ChatGPT. The reason is that its hosts don’t list their properties on their own websites. That means ChatGPT can’t find them directly and present them to customers. So the threat is much lower.
By contrast, virtually all of Rightmove’s listings come from estate agents. That means they can probably be found by AI going directly. Auto Trader is a mix of the two. But 95% of its listings are from dealers, compared to just 5% that are private listings.
From that perspective, it looks a lot more like Rightmove than Airbnb. And that makes me worry about the AI threat.
Auto Trader has survived the move from paper listings to the internet, so I’m not counting it out. But I am wary about the risks.
Nike
Shares in Nike (NYSE:NKE) have been falling for some time. And the situation got worse earlier this week after the firm’s latest update.
The company has been doing well enough. But the outlook is for a 20% sales decline in China, which is set to weigh on overall revenues.
Nike is in a transition period. Strategic errors have cost the firm customers and retail partners and it’s working to win them back.
Losing market share in China is a big surprise and clearing the excess inventory that’s weighing on sales isn’t going to happen overnight. But there are real reasons for positivity.
The firm’s brand is a real asset. And it’s easy to underestimate the significance of this.
Cheaper competition is a threat, but that’s nothing new for Nike. That’s a testament to its brand strength.
It’s also worth noting that switching costs for consumers are relatively low. That creates opportunities to win back lost market share.
Ultimately, there are signs of progress being made under the current CEO. The latest news, however, is clearly a setback.
I think the stock is worth considering at today’s heavily-discounted prices. But only for investors who are prepared to be patient.
Stocks to consider
Falling share prices can be buying opportunities, but stocks rarely go down for no reason at all. There’s always risk one way or another.
Value investing is about working out when the market is overestimating that risk – and when it isn’t. And that’s not always clear.
Both Auto Trader and Nike are on my list of stocks to take a closer look at this month. But at the moment, Nike looks the more promising to me.
