Which is better growth or value stocks?
When investors invest in growth stocks, they have an eye toward huge future capital gains. Unlike value stocks, which many investors choose because of strong fundamentals, growth stocks are often selected because of the stock's strong potential for growth, even if its current earnings are low.
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.
Value stocks have more limited upside potential and, therefore, can be safer investments than growth stocks.
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.
One of the main benefits of investing in growth shares is the potential for higher share price returns if companies succeed in delivering above-average earnings growth. Growth shares also tend to outperform during favourable economic conditions when investor confidence is high.
Growth stocks may do better when interest rates are low and expected to stay low, while many investors shift to value stocks as rates rise. Growth stocks have had a stronger run in the last decade and more, but value stocks have a good long-term record.
In the most straightforward terms, growth stocks are not only growing revenues at a faster-than-average pace, they also typically reinvest those revenues into their businesses to spur future growth.
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.
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.
- DaVita Inc. ( ticker: DVA)
- DraftKings Inc. ( DKNG)
- Extra Space Storage Inc. ( EXR)
- First Solar Inc. ( FSLR)
- Gen Digital Inc. ( GEN)
- Microsoft Corp. ( MSFT)
- Nvidia Corp. ( NVDA)
- SoFi Technologies Inc. ( SOFI)
Why is value investing better than growth investing?
Some studies show that value investing has outperformed growth over extended periods of time on a value-adjusted basis. Value investors argue that a short-term focus can often push stock prices to low levels, which creates great buying opportunities for value investors.
And it might be refreshing to see that Warren Buffett and his team, who are known for their value picks, have a few top growth stocks as well.
Stocks are always fully represented by the combination of their growth and value weights. For example, a stock that is given a 20% weight in a Russell value index will have an 80% weight in the corresponding Russell growth index.
Though there is no ideal time for holding stock, you should stay invested for at least 1-1.5 years. If you see the stock price of your share booming, you will have the question of how long do you have to hold stock? Remember, if it is zooming today, what will be its price after ten years?
| Stock | 2024 return through March 31 |
|---|---|
| Arcutis Biotherapeutics Inc. (ARQT) | 206.8% |
| Janux Therapeutics Inc. (JANX) | 250.9% |
| Trump Media & Technology Group Corp. (DJT) | 254.1% |
| Super Micro Computer Inc. (SMCI) | 255.3% |
- Volatility: Growth stocks can be more volatile than other types of investments, leading to greater short-term fluctuations.
- No dividend income: Investors seeking regular income through dividends may find growth stocks unsuitable.
- Risk: High valuations may not always materialise, leading to potential losses.
- Value stocks tend to underperform in bull markets. If the overall market is going up, growth stocks will usually go up more than value stocks. ...
- It can be challenging to find truly undervalued stocks. ...
- Value investing requires patience.
- Initial public offerings (IPOs)
- Venture capital.
- Real estate investment trusts (REITs)
- Foreign currencies.
- Penny stocks.
- Cisco Systems Inc. (ticker: CSCO)
- Comcast Corp. (CMCSA)
- Telus Corp. (TU)
- Unilever PLC (UL)
- Sony Group Corp. (SONY)
- Toronto-Dominion Bank (TD)
- Solventum Corp. (SOLV)
- Essential Utilities Inc. (WTRG)
| S.No. | Name | CMP Rs. |
|---|---|---|
| 1. | Rama Steel Tubes | 12.33 |
| 2. | Brightcom Group | 15.14 |
| 3. | Easy Trip Plann. | 44.90 |
| 4. | Radhika Jeweltec | 66.16 |
Should I buy growth or dividend stocks?
Stocks and mutual funds that distribute dividends are generally on sound financial ground, but not always. Stocks that pay dividends typically provide stability to a portfolio but may not outperform high-quality growth stocks.
| Stock | Expected Change in Stock Price* |
|---|---|
| JPMorgan Chase & Co. (JPM) | -3.4% |
| Tesla Inc. (TSLA) | 61% |
| Mastercard Inc. (MA) | 14.2% |
| Salesforce Inc. (CRM) | 7.2% |
- British American Tobacco BTI.
- Imperial Brands IMBBY.
- Reckitt Benckiser Group RBGLY.
- Pfizer PFE.
- Anheuser-Busch InBev BUD.
- Polaris PII.
- Ambev ABEV.
- Estee Lauder EL.
Historically, value investing has outperformed growth investing over the long term. Growth investing, however, has been shown to outperform value investing more recently. One recent article noted that growth investing had outperformed value investing over the last 25 years.
Wall Street analysts' consensus estimates predict 3.6% earnings growth and 3.5% revenue growth for S&P 500 companies in the first quarter. Analysts project full-year S&P 500 earnings growth of 11.0% in 2024, but analysts are more optimistic about some market sectors than others.
