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Stock Value vs. Price: What’s the Difference?

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This infographic is available as a poster.

Stock Value

Stock Value

This infographic is available as a poster.

Stock Value vs. Price: What’s the Difference?

From the Dutch Tulip Mania of the 17th century to the Roaring Twenties, asset bubbles have cropped up in markets persistently.

The recent activity in GameStop and other securities are no exception. But what does this mean for investors today? To answer this question, we return to a key principle of investing: the difference between a stock’s price versus its value.

This Markets in a Minute chart from New York Life Investments shows the key forces that impact both price and value to help investors harness a deeper understanding of their investments.

What Determines a Stock’s Value?

A company (represented by a stock) derives its value from fundamental factors including:

Earnings

Earnings, or profitability, is often an indicator of company performance. Past and present numbers indicate a company’s profitability thus far, while future earning projections help investors gauge potential performance going forward. This is germane to investors because a company will typically reinvest its earnings into the business or distribute them as dividends to investors.

Market Share

Companies with strong market share possess economic moats, which create a barrier against competitors. These moats can protect a company from new market entrants or allow for cost advantages, increasing the company’s value to investors.

P/E ratio and Other Metrics

The price-to-earnings (P/E) ratio is a common metric for valuing companies. It measures a company’s price in relation to its earnings per share (EPS). If a company has a low P/E ratio compared to its peers, this may suggest that it is undervalued.

Here are common metrics used to value a stock:

MetricFormulaPurpose
P/E ratioPrice/Earnings Per ShareCompares a company’s stock price relative to its earnings
P/B ratioPrice/Book Value Per ShareCompares a company’s stock price relative to its tangible net asset value
Debt-to-equity ratioTotal Liabilities/Total Shareholders’ EquityShows company leverage, or the extent that a company is financing operations through debt

Competitors (Current and Potential)

Comparing a company against its peers can indicate its relative strength. An investor may discover value discrepancies between competitors, presenting potential investment opportunities.

What Determines a Stock’s Price?

A stock’s price, on the other hand, is typically influenced by a separate set of factors:

Investor Demand

Supply and demand is central to determining the price of a stock. When an influx of market participants are buying a stock, the market price will rise. If the number of sellers for a stock exceeds the number of buyers, the price may drop.

Broad Market Trends

Bull and bear markets are examples of primary markets, which may influence a stock’s price performance. Rallies or directional turnarounds are other types of shorter market trends which often last between two to eight weeks.

Media and Analyst Reports

When a company faces a controversy, media reports may influence investor behavior, causing them to sell. Conversely, a strong analyst rating may influence investors to buy.

Economic Factors

Across asset classes, six macroeconomic factors have been shown to explain 90% of a stock price’s movements: real rates, economic growth, liquidity, inflation, emerging markets, and credit.

Company News

When a company releases quarterly earnings reports, it may influence investor demand. If Apple’s company’s earnings exceed expectations, for instance, its stock price may consequently rise after the announcement.

In the short term, many of the variables that influence a stock’s price are driven by external forces. But in the long term, fundamental factors such as profit margins or earnings, often play a bigger role.

Forest For the Trees

With the above factors in mind, investors are better equipped to recognize the driving forces that underscore a stock’s price and value, especially in the face of volatility and market exuberance.

By knowing these core differences, investors will not only get a better awareness of their portfolios, but will learn how to make more rational investment decisions.

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Markets in a Minute

Data Centers: Investing in the Infrastructure of the Future

Infrastructure refers to any asset that provides an essential service. In today’s interconnected world, data centers are exactly that.

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Data Centers

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Data Centers: Investing in the Infrastructure of the Future

Digital transformation is one of the world’s most prominent trends today.

For evidence, consider the growth in internet users worldwide. By 2023, 5.3 billion people (66% of population) will be using the internet, up from 3.9 billion (51% of population) in 2018.

This growth has resulted in an incredible amount of data being produced each day, whether its from streaming music on Spotify or buying goods on Amazon. But how is all this data being processed?

In this Markets in a Minute chart from New York Life Investments, we shed light on the importance of data centers, and why they should be considered as core infrastructure.

The Role of the Data Center

A data center is a facility that stores, processes, and disseminates data. There are thousands of them around the world, and collectively, they’re referred to as the “cloud”.

This puts data centers at the center of nearly everything we do online: e-commerce, communications, storage and back-up, and even online gaming. To gain a better sense of what this all looks like, the following table breaks down the storage capacity of the world’s data centers.

Segment2016 Storage Capacity (exabytes)2021 Storage Capacity (exabytes) 
Compute160470
Collaboration170400
Database & analytics150380
Enterprise resource planning180420
Video streaming50180
Social networking60160
Search engine30100
Other consumer apps70190
Total8702,300

Source: Statista (2021)

One exabyte is equal to one billion gigabytes, which means the world currently has 2.3 trillion gigabytes of total storage.

The largest segment is compute instances, which are cloud-based workstations used by data scientists. At the lower end of the scale are segments like video streaming (includes Netflix and Hulu) and social networking (think Facebook or LinkedIn).

Cloud Spending Reaches a Historic Milestone

For businesses that create and use data, moving to the cloud (as opposed to maintaining their own servers) has plenty of advantages like cost savings, flexibility, and security.

This is driving exponential growth in cloud infrastructure spending, which reached a record $130 billion in 2020. At the same time, spending on data center hardware decreased from $96 to $90 billion. These results are partly attributed to COVID-19, which forced many businesses to switch to a work-from-home operating model.

A survey conducted by 451 Research found that 40% of businesses had increased their usage of cloud services during the pandemic. In addition, 85% of those who were impacted indicated that the move would be a permanent one.

Data Centers are Infrastrcture

The scope of an infrastructure investor has historically been limited to companies in construction, energy, and transportation.

But what defines infrastructure?

It’s any physical system that is vital for an economy’s development and prosperity—and in a world where over 5 billion people are expected to be online by 2023, the data center is the perfect embodiment of that.

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Markets in a Minute

Sustainable Investing Assets Worldwide (2018-2020)

From 2018-2020, global sustainable investing assets grew by 15% to reach $35.3 trillion. Here’s how they break down across five major markets.

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Sustainable Investing

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Sustainable Investing Assets Worldwide (2018-2020)

Sustainable investing is top-of-mind for many investors, but how fast is it actually growing?

Between 2018 and 2020, global sustainable investing assets grew 15% to reach $35.3 trillion. This works out to more than a third of total assets under management.

In this Markets in a Minute from New York Life Investments, we explore the value and growth of sustainable investing assets across five major markets.

What is Sustainable Investing?

Sustainable investing considers environmental, social, and governance (ESG) factors in portfolio selection and management. For the purposes of this data, it is a broad definition that includes seven main approaches:

  • ESG integration
  • Corporate engagement & shareholder action
  • Norms-based screening
  • Negative/exclusionary screening
  • Best-in-class/positive screening
  • Sustainability themed/thematic investing
  • Impact and community investing

In most regions, it is becoming increasingly common to combine several of the above strategies within the same product.

Sustainable Investing Assets by Region

Sustainable investment data comes from five major markets: the U.S., Europe, Japan, Canada, and Australasia. Currencies have been converted to U.S. dollars at the prevailing exchange rate at the day of reporting. We’ve based growth rates on U.S. dollar values.

Here is the value of sustainable investing assets in U.S dollars, sorted by asset amounts in 2020.

Region20182020Growth Rate
United States$12.0T$17.1T42%
Europe$14.1T$12.0T-15%
Japan$2.2T$2.9T32%
Canada$1.7T$2.4T43%
Australasia$734B$906B23%

All 2020 assets are reported as of December 31, 2019 except for Japan which reports as of March 31, 2020. Australasia is Australia and New Zealand. In 2020, Europe includes: Austria, Belgium, Bulgaria, Denmark, France, Germany, Greece, Italy, Spain, Netherlands, Poland, Portugal, Slovenia, Sweden, the UK, Norway, Switzerland, and Liechtenstein.

The U.S. makes up almost half of global sustainable investment assets, and saw the second highest growth rate. One strong theme in the country is racial justice investing. Over 120 investors and organizations signed a call to action for the investment community to dismantle systemic racism and promote racial equity and justice. They plan to achieve this through various actions, such as hiring people of color and financing Black entrepreneurs.

Europe makes up over a third of all sustainable investing assets. The region has seen important regulatory developments, such as:

  • Institutional investors, asset managers, and advisors must report on how they integrate sustainability risks and adverse impacts at the entity level
  • Advisors are required to ask about their clients’ ESG preferences and advise appropriate products

While Europe saw a decline in growth from 2018-2020, this is because the region has changed how they define sustainable investing. Tighter legislation means that some products that previously qualified as sustainable may not meet the new requirements. The goal of the legislation is to create clear standards for sustainable products, promoting trust and easier access for investors.

The Mounting Pressure

Globally, the proportion of sustainable investing assets is growing. In fact, sustainable investments make up 36% of global assets under management, up from 28% in 2016.

Investment professionals say the top drivers of sustainable investing are to help manage investment risks, and because clients demand it. Not only that, the recent Intergovernmental Panel on Climate Change (IPCC) report has reinforced the importance of sustainable investments.

“The climate crisis poses enormous financial risk to investment managers, asset owners and businesses….. The public and private sector must work together to ensure a just and rapid transformation to a net-zero global economy.”
António Guterres, UN Secretary-General

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