Are Value Stocks Ready to Rebound?
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.