In stark contrast is a classic “value trap.” Like the value or contrarian investment, these stocks also trade at low measures of standard valuation, for example low P/E multiples and high dividend yields. And chances are their price charts are also a real horror show, with the only discernable momentum being downward.
Unlike a value/contrarian play, however, a value trap lacks a strong underlying business. In fact, low valuations and weak technicals are perfectly justified. If anything, the stock should trade at an even lower price, and very likely will eventually.
Being able to distinguish a value/contrarian stock from a bona fide value trap is absolutely essential if you’re going to buy in an under performing sector. And that’s exactly what communications has presented investors for what’s been a range-bound decade, even for best in class companies.
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