The financial markets continue to discount a slow growth environment, which we believe is reflected in the depressed valuations of growth equities and the prevailing low yields within the fixed income market. In our opinion, growth companies are attractively valued relative to past valuations, future growth potential, and other assets such as corporate bonds. Learn more in the tabs below  FUTURE CASH FLOWS NO GROWTH ASSUMPTIONS EQUITIES VS. BONDS GLOBAL OPPORTUNITIES RELATED RESOURCES
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Investors hold a decidedly skeptical view of future growth potential, which we believe is reflected in the current value of growth stocks as a whole. |
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The chart to the left shows the value of future growth, as represented by future cash flows, for the Russell 1000 universe of growth companies. |
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The value placed on future cash flows has trended lower for much of the last decade and today is near its low for the past 30 years (blue line, right axis). |
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Perhaps even more importantly, previous troughs in the value of future growth have often coincided with high 12-month forward returns for stocks (gray bars, left axis). |
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The chart depicts the value of Russell 1000 Growth companies relative to their market value if we remove all future growth assumptions. |
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The end result of removing the growth assumptions is an estimate of the fair value of a company with no growth in the business, ever. For example, a price to no-growth ratio of 1.0 means the market is pricing no future growth into the current market value. |
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Equity prices have recovered significantly from the crisis-level lows yet, with a ratio of approximately 1.45, the market is still assigning little value to future growth. We believe this heightened degree of pessimism presents an opportunity to equity investors. |
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The chart to the left illustrates our measure of the cash flow yield for U.S. growth stocks versus corporate bonds yields, as represented by the Russell 1000 Growth Index and Baa-rated corporate bonds, respectively. |
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Compared to corporate bonds, we believe growth equities are significantly undervalued and remain at multi-decade lows, aside from the phenomenal spike during the financial crisis. |
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The valuation opportunities we see in growth equities are global, not just within the United States. Many companies, whether in developed or emerging markets, are capitalizing on opportunities outside of their home markets. When determining valuation estimates, we believe that it is more important to know where revenues are derived and to determine the sustainability and growth of those revenues than to focus solely on its country of incorporation. |
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To the left, we provide a snapshot of the Calamos International Growth strategy’s holdings by region versus the percent of sales derived by holdings from each region. Europe accounts for more than 50% of the portfolio’s holdings, yet revenue from the region is well behind that provided by Asia and North America. This fits with our macro concerns on being overly exposed to economic growth in the European region as well as with our focus on gaining exposure to growth in emerging economies, particularly those in Asia. |
| CALAMOS RESEARCH |
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The Opportunity in Growth Equities
Growth equity valuations reflect substantial investor pessimism. In our opinion, growth companies are attractively valued relative to past valuations, future growth potential, and other assets such as corporate bonds. |
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Calamos Equity Valuation Process: Determining Cash Flows and Valuing a Business
The value of any security is a function of the underlying business's cash flows and the quality of those cash flows. This paper outlines Calamos Investments' research process for determining a company's business valuation. |
| CONTACTS US |
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Martin Coughlan, CFA, CAIA
SVP, Senior Portfolio Specialist &
Head of Institutional Business
Phone: 630.245.6754
mcoughlan@calamos.com |
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David Danhauer, CFA
VP & Director of Direct Institutional Sales
Phone: 630.955.4830
ddanhauer@calamos.com |
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Kamila Kowalke
VP & Director of Direct Institutional Sales
Phone: 630.245.1668
kkowalke@calamos.com |
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Daniel Ryan
VP & Director of Direct Institutional Sales
Phone: 630.577.2162
dryan@calamos.com | The information contained herein is based on internal research derived from various sources and does not purport to be statements of all material facts relating to the information mentioned. The information contained herein, while not guaranteed as to the accuracy or completeness, has been obtained from sources we believe to be reliable. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based on any information provided herein. Past performance does not guarantee future results.
Russell 1000® Growth Index–Measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.
Unmanaged index returns assume reinvestment of any and all distributions and, unlike fund returns, do not reflect fees, expenses or sales charges. Investors cannot index invest directly in an index.
The information contained herein is based on internal research derived from various sources and does not purport to be statements of all material facts relating to the information mentioned. The information contained herein, while not guaranteed as to the accuracy or completeness, has been obtained from sources we believe to be reliable. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based on any information provided herein. Past performance does not guarantee future results.
Russell 1000® Growth Index–Measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.
Unmanaged index returns assume reinvestment of any and all distributions and, unlike fund returns, do not reflect fees, expenses or sales charges. Investors cannot index invest directly in an index. The information contained herein is based on internal research derived from various sources and does not purport to be statements of all material facts relating to the information mentioned. The information contained herein, while not guaranteed as to the accuracy or completeness, has been obtained from sources we believe to be reliable. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based on any information provided herein. Past performance does not guarantee future results.
Russell 1000® Growth Index–Measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.
Unmanaged index returns assume reinvestment of any and all distributions and, unlike fund returns, do not reflect fees, expenses or sales charges. Investors cannot index invest directly in an index.
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