Why Value Now?
Over the last several years, we have seen Growth Stocks meaningfully outperform Value Stocks. In the 4th quarter of 2021, we started to see a rotation away from growth and into value. This session will examine value versus growth cycles over time and discuss why we believe value stocks are currently well positioned. watch the video below:
- Josh Dupont, Partner & Director of Client Portfolio Management
The main question is, instead of why value now is, why value anytime? LSV is a value equity manager that did an empirical study looking at the past 50 years of data, giving equal weight to all years instead of just the nifty 50s and 70s.
Why do some stocks have price-per-earning ratios (P/Es) of 5 or 6 compared to 50 or 60? The stocks with low P/E expect minimal to no growth (or are underestimated) in the future, while stocks with high P/Es have typically seen gangbuster growth. LSV Asset Management believes the market is over-extrapolating these growth rates too far into the future. The current expected growth rate of these big-name stocks is higher than the rate between 2015-2020. It will be challenging to live up to these expectations with the odds of being above median growth goes down year over year. Growth stocks grow less over time while value stocks grow more over time, closing the gap over the years.
In terms of the why value now and the why value anytime, we believe the components of the realized stock returns really play into the benefit of the value names. Very rarely do you see companies giving dividends with growth stocks, while value stocks are well known for returning cash to shareholders via buybacks or dividends that could be in the 2/3/4% range. On the growth end, you see multiple contractions on average for growth stocks, which is a head win. You see very high expectations for future growth, which are difficult to maintain and not very persistent. It is harder to have high growth rates above the GDP of the United States for very sustained periods, and you don't get dividends.