Growth Stocks vs Value Stocks (2024)

FAQs

Growth Stocks vs Value Stocks? ›

Growth stocks may offer more upside, but that benefit comes with greater risk and volatility. Conversely, value stocks may offer less upside, but that drawback is often counterbalanced by more stable returns.

For example, value stocks tend to outperform during bear markets and economic recessions, while growth stocks tend to excel during bull markets or periods of economic expansion. This factor should, therefore, be taken into account by shorter-term investors or those seeking to time the markets.

Unlike growth stocks, which typically do not pay dividends, value stocks often have higher than average dividend yields. Value stocks also tend to have strong fundamentals with comparably low price-to-book (P/B) ratios and low P/E values—the opposite of growth stocks.

growth and value stocks, most investors agree on the broad characteristics of companies in each category: growth stocks tend to have higher price-to-earnings ratios or market- to-book ratios, while value stocks have low P/Es and M/Bs and may have high dividend yields.

We expect lackluster global earnings growth with downside for equities from current levels.” Against this backdrop, value stocks have a strong chance of outperforming their growth counterparts in 2024.

While growth stocks handily outperformed value from 2015 through 2021, 2022 was a different story. Growth stocks, represented by iShares S&P 500 Growth ETF (IVW), sank 30% in 2022.

The S&P 500 market capitalization is divided roughly equally into growth and value. One of the quirks of the indexes is that it's rare when a stock is 100% classified as just a growth or value stock.

Low interest rates and astronomically high-tech stock values that don't conform to conventional financial measures are two of these. Value investing as a concept is still useful today, despite all these obstacles.

In absolute terms, our median forecast is for U.S. value stocks to return 5.6%, annualized, over the coming decade.

What is the disadvantage of growth stocks? ›

Growth stocks carry relatively lesser risk because their growth rate is high and increasing. They are relatively less sensitive to adverse economic conditions than the overall market. Hence, growth stocks are relatively less risky investments. Value stocks come with lower metric ratios because they are undervalued.

Value premiums have often shown up quickly and in large magnitudes. For example, in years when value outperformed growth, the average premium was nearly 15%. On average, value stocks have outperformed growth stocks by 4.4% annually in the US since 1927, as Exhibit 1 shows.

Key Takeaways. The banking sector is a good choice for value investors. Value investors look for stocks that trade for less than their intrinsic value. The banking sector pays dividends, which demonstrates a great history and provide investors with a share in profits.

Growth stocks have the potential to significantly outpace the market average, which is ideal. If you're looking for a growth stock that can beat the market, the Vanguard Growth ETF (VUG 0.24%) can do the trick.

Traditionally, growth investors focus on companies that increase their sales or earnings quickly, while value investors focus on stocks that trade at low valuation multiples. Buffett thinks value and growth are two variables in the same calculation, meaning investors shouldn't prioritize one over the other.