Don’t count value stocks out as a just a short-term bet, an article in Barron’s contends. With a recent boost from the economic recovery, value stocks are looking to be a good long-term opportunity.
Since value stocks respond more sensitively to the strength of demand in the economy than growth shares, they’re soaring as the economy comes back to life after the government poured trillions into the economy and pandemic restrictions continue to ease. Meanwhile, growth gains have slowed, the article continues.
Since the end of the 3rd quarter of 2020 the Russell 1000 Value Index has shot up 37% while the Russell 1000 Growth Index is up 24%. This trend, many analysts forecast, could stay in place for the long term. Currently, the Russell 1000 Value Index average estimate of long-term growth in earnings per share is only 4 percentage points behind the growth-index counterpart—the brightest outlook for value since early 2016. That gives value stocks a good shot at outperforming growth, especially given historical data which shows that when value companies aren’t projected to lag behind growth firms, value performs better. And while there are still promising growth stocks to be found, given that profit-growth predictions show that the value index should outperform growth by double-digit percentages, it would be wise for investors to buy up a handful more value stocks.