Why deep value could be the surprise winner in 2026

‘Deep value’ is entering 2026 with a stronger case than many expected. The style has spent years being dismissed as old-economy, cyclical and structurally challenged. Yet the setup now looks unusually fertile for patient investors.

That view rests on one simple idea. Markets have again stretched the gap between the loved and the unloved. When that happens, future returns tend to improve for investors willing to buy discomfort rather than consensus.

For advisers, consultants and researchers, that matters. Private wealth portfolios still need diversification beyond the obvious winners. They also need a framework for risk that goes deeper than index labels and backward-looking factor screens.

Dispersion is doing the heavy lifting

John Goetz, co-CIO and portfolio manager at New York-based Pzena Investment Management, says the critical feature is not any single sector call; it is the widening spread in valuations across the market.

“The key word again is dispersion in valuations.”

That spread has followed a familiar pattern. Long momentum phases tend to reward hope, narrative and expensive certainty. Value strategies often lag through that phase, because they are not paying up for the dream. But once expectations start to cool, the payoff can be significant.

Goetz argues that this is especially relevant outside the United States. In past cycles, wide valuation dispersion has set up a long runway for recovery in value returns. The point is not that every cheap stock rallies at once. The point is that the odds improve when the market becomes too confident about one narrow set of outcomes.

Importantly, the opportunity set has broadened. Goetz notes that deep value is no longer confined to banks, energy and heavy cyclicals.

Some stocks once seen as reliable quality franchises have also fallen into deeply discounted territory. That gives the opportunity set more balance and may challenge the old view that deep value only works when economic sensitivity is in favour. That is an important distinction for private wealth allocators.

A deep value portfolio today may still own cyclicals, but it need not be a pure macro bet. It can also hold healthcare, staples and industrial names where expectations have simply reset too far.

Value is not broken, the shortcuts are

The other debate heading into 2026 is more philosophical. Has value investing been changed by new business models, intangible assets and benchmark concentration?

Dan Babkes, portfolio manager at Pzena, thinks that critique misses the point.

“We’re not buying into a factor,” Babkes says. “We’re always trying to think through the long-term trajectory of the business models.”

That matters because much of the criticism of value targets crude accounting measures. Babkes accepts that some old shortcuts may be less useful in a changing economy. But he says that is not how Pzena approaches the task. The firm is focused on cash flows, business durability and the price paid for both.

“Buying long-term growing cash flow at a very cheap price, that’s the starting point of any good investment,” he says.

His formulation is blunt. That line cuts through a lot of industry noise. Deep value, at least in this telling, is not about mechanically buying statistically cheap names. It is about underwriting businesses whose future cash generation is being priced too harshly by the market. That is a different proposition from passive value exposure, and a more active one.

Babkes also points to a problem inside the benchmarks themselves. Market concentration has become so intense that style indices no longer look like clean expressions of style. In the US, big technology names now distort broad value indices, muddying the comparison between genuine deep value managers and the benchmarks meant to represent them.

For advisers and consultants, this is more than a technical point. If the index is compromised, manager evaluation becomes harder. A disciplined deep value strategy may look very different from the style benchmark, precisely because the benchmark has absorbed some of the growth winners it was not meant to capture.

Reset expectations, then look for asymmetry

If there is one idea that ties the whole argument together, it is expectations. Goetz says value’s opportunity does not come from a magic style rebound. It comes from the market’s habit of extrapolating too far in both directions.

“Well, certainly, it’s all about expectations,” he says.

When momentum peaks, risk often hides in the expensive end of the market. “No one’s looking down anymore,” Goetz says. “You’re just looking up and expecting up.” That, he argues, is when downside becomes most dangerous, because lofty valuations leave no room for disappointment.

This way of thinking is useful in private wealth. Advisers are often asked where the next winners will come from. The harder, and often better, question is where expectations have become impossible to satisfy. Deep value starts there. It asks what is already priced in, and what happens if reality turns out merely less bad.

Goetz pushes the point further. “There’s only two types of business in the entire world: those that have a problem today, and those that will have a problem in the future.” It is a neat summary of the value mindset. Every business face risk. The issue is whether that risk is already reflected in the price.

That does not make deep value easy. Cheap stocks can stay cheap. Some deserve their discount. But in a market still shaped by concentration and expensive optimism, the style’s logic looks intact.

For 2026, the case is not that value has suddenly become fashionable again. It is that the arithmetic of paying less, while expectations are low, still matters. And after a long period of neglect, that may be enough.