Investors deciding whether to line up behind value or growth stocks might do well to engage in a bit of shuttle diplomacy, says recent research...
Investors deciding whether to line up behind value or growth stocks might do well to engage in a bit of shuttle diplomacy, says recent research by institutional investment adviser Aronson + Johnson + Ortiz.
Value stocks tend to be less pricey than growth stocks, which are expected to have faster-growing earnings. Valuation differences between value and growth stocks are “distinctly average” right now, the Philadelphia firm says.
At such times, value stocks tend to outperform for many years. But last year, value stocks suffered.
It’s not clear when these stocks, which now trade at a discount to their historic valuations, might return to favor, says Brian Wenzinger, a portfolio manager at the advisory firm. That’s why holding a bit of value and growth might offer investors security.
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Robert Schaeffer, portfolio manager at Becker Capital Management in Portland, looks for both qualities.
“The reality is almost all investors are looking for companies with good growth prospects. We’re not looking for the next buggy-whip company,” Schaeffer says. “We’re simply looking for companies with good growth prospects that have stumbled or are out of favor.”
Wenzinger cautions that bargain hunting can be tricky. Hard-hit financials are the largest sector in the Russell 1000 value index. “That’s sort of the danger zone,” Wenzinger says.
“As a value investor, you will gravitate to the financials,” he says. “This is a perfect time for sort of a value-focused investor to start picking through the bones of companies that may or may not have good earnings potential in the next few years. They just have to be very, very careful.”
Investors might also seek growth bargains in technology.
But Schaeffer sees value as a safer bet.
“If you’re wrong with a value-investing approach you’re less likely to become severely beaten up as opposed to a growth strategy.”