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When will value outperform growth again?

by , 24 May 2022
When will value outperform growth again?
Editors Note: There is a certain group of overlooked stocks that thrive off extreme market conditions like the ones we're experiencing. Make no mistake - the crash in growth and tech stocks is no passing blip. A new decade of Value has already begun and the window of opportunity to capture returns of 200%, 300%... possibly more…. is closing fast. It's a once in a generation opportunity that could transform your wealth, your lifestyle and your retirement.

All the signs indicate it’s happening already and this is only the beginning.

While the MSCI World growth index has fallen about 25% this year, value stocks are offering some protection from the current bearish market and increasing inflation.

According to Bloomberg figures, those investing in global companies that are cheap relative to their book value and profits have generated returns of almost 30% so far this year.  

And one only has to look at local investment analyst Francois Joubert’s portfolio of stocks to confirm that
quality companies selling well below their real value are coming into their own.  

At the end of 2021, he closed out 20 stocks with an average 70% gain.

According to Yoram Lustig of US asset manager T Rowe Price, “There is a regime shift under way.” And Rob Arnott, founder of consultancy firm, Research Affiliates, says “We survived the worst decade for value in history and now we’re enjoying the fruits of the rebound.”

So, what’s the difference between value stocks and growth stocks and why should you be considering investing in value now?


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Growth versus Value – Which is better?

First, let’s quickly understand the difference:

Simply put, Growth investors look for R100 shares that could be worth R200 in a few years because a particular company is expected to expand and grow quickly and the market prices its valuation at a premium… e.g. Amazon, Apple

Value investors on the other hand look for R50 stocks that are actually worth R100 today, not in a few years, i.e. these are companies that are out of favour now and have a low valuation.

Now let’s take a look at history…

“From 1927 through 2019, over rolling 15-year time periods, value stocks have outperformed growth stocks 93 percent of the time,” this is according to the data compiled by Nobel Prize laureate Eugene Fama and Dartmouth professor Kenneth French.

But for the last decade, growth stocks have reigned supreme as a result of central banks shoring up economies with repeated rounds of stimulus and
keeping interest rates low.

But now, as the market turned bearish with inflation reaching new highs, interest rates increasing globally and recession written all over the market, value investors have come to the fore, seeking out quality companies with strong earnings, priced well below their real value.

So, do you look for value or buy the dip in growth?

Both growth stocks and value stocks offer lucrative investing opportunities. The question is what your investment goals are and your timeline.

For instance, Value stocks are more likely to be appealing if:

  • You're interested in generating income from your portfolio. e.g Value stocks are often cash rich and pay consistent dividends.
  • Value Stock price moves are less volatile. The price of a growth stock tends to be extremely sensitive to changes in future prospects for a company's business. They can rise very quickly and fall just as fast as we have seen over the past few months with many tech companies.
  • Growth stocks can involve cherry picking winners in fast expanding areas like tech, whereas value stocks are typically established global companies, that are simply in sectors that are out of favour.
  • You do have to watch out for Value traps. These are stocks that look cheap and are cheap for a good reason. e.g. its lost its competitive edge, or it can't keep up with the pace of innovation.
  • You want a more immediate payoff from your investment. If an undervalued company is successful in getting its business moving in the right direction, its stock price can rise quickly. That’s where Francois’, Red Hot Penny Share strategy and my Real Wealth strategy have paid off.

So, if I had R10,000, where would I invest it now

As Warren Buffett, John Templeton and Charlie Munger have proved, value investing is one of the best ways to build long-term wealth.

By adopting their strategies as part of our Real Wealth investment philosophy, we have been able to generate 15.89% return a year for the last 12 years.

Value stocks I’m watching include Coronation, Tharisa, Etion to name a few.

If you want to know which three value stocks I would buy now, then you need to read my latest report, it’s free,
you can get the full details on how to claim it here.

When will value outperform growth again?
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