Over the long run, value stocks—those that are inexpensive relative to their earnings, sales and book value (assets minus liabilities)—have handily beaten growth stocks, which boast faster-than-average earnings and sales growth. Since 1926, value stocks have topped growth stocks by an average of 4.4 percentage points per year, according to a study by Bank of America Merrill Lynch.
Academics began documenting the superiority of value stocks decades ago. The logic behind value’s better returns: Investors tend to bid up the prices of growth stocks, such as Amazon.com (symbol AMZN) and Netflix (NFLX), higher than makes sense. Meanwhile, they often overlook boring, bargain-priced stocks. Eventually, though, investors come to recognize the value in value stocks.
Continue reading the full article on Kiplinger.com here.