Four reasons why value stocks are poised to outperform growth in 2022 — and 14 stocks to consider

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Investing is all about being in line with trends. Here’s one to be aware of by 2022: Value stocks will most likely beat their growth counterparts.

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The trend is already underway. Consider:

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*Vanguard S&P 500 Growth Index Exchange Traded Fund VOOG,
+1.09%
has declined 5.6 percent so far, while the Vanguard S&P 500 Value Index Fund VOOV,
+0.73%
is flat.

* Value groups including banks and energy stocks are crushing growth stocks like Arch Invest’s favorite names. KBW Bank Index BKX,
+0.88%
and Energy Select Sector SPDR ETF XLE,
+3.40%
are up 6%. In contrast, the ARK Innovation ETF ARKK,
+2.76%
has fallen by more than 13%. That ETF is full of growth darlings like Tesla TSLA,
+0.59%,
coinbase global coin,
+5.43%,
teldoc health tdoc,
+5.04%
and Zoom Video Communications ZM,
+1.98%,

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Two price Take a look at the four forces in favor of courtesy investment experts, price development, consider it after 14 value stocks.

1. Rising interest rates favor value stocks

Too many investors value stocks using the net present value (NPV) model — especially high-growth stocks that have earnings expected in the distant future. This means that they are currently exempt using the assumed discount rate, usually TMUBMUSD10Y yield on 10-year Treasuries, the
1.743%,
When the discount rate goes up, the NPV goes down.

So naturally, when 10-year yields rising, techniques to reduce performance in areas such as high-end stock cyclical, financial and energy sectors, such as the cheap stock, RBC Capital Markets strategist explains Lori Kailwasina.

Similarly, the most expensive shares Price-to-earnings (P / E) multiples tend to be correlated inversely with yields of 10-year hiking cycles of the Federal Reserve, he says. The opposite is true for value stocks.

“When the yield of 10-year-old is growing, least expensive stocks have outperformed most expensive stocks as historic,” she says.

Ed Yardeni’s 10-year yield at Yardeney Research projects could rise to 2.5% by year-end, up from about 1.79% now. If that is true, it means that the value outperformance will continue. Though there will be counter-rallies in development and technology along the way (more on this below).

The value at RBC Capital Markets increased yield that a chart is shown that historically outperformed. Light is represented by the blue line bond represents a return, and cheap stock performance relative to the dark blue line, expensive stock.

2. High inflation is positive for price Strategies

This has historically been the case, explains John Buckingham, a value manager at Kovitz Investment Group who writes The Prudent Speculator stock letter. He now hopes for a repeat. One reason for this is that fears of inflation tend to push yields on 10-year bonds, creating a detrimental NPV effect for growth names (described above).

But another aspect is at work. During times of inflation, companies with real earnings can increase profit margins by raising prices. As a group, value companies tend to be more mature, which means they have improved earnings and margins. Investors notice this, so they are attracted to those companies.

In contrast, development names are characterized by Be expected income, so they benefit less from price increases.

“Growth companies don’t make money, so they can’t improve margins,” Buckingham says. “They’re paying employees more, but they’re not making more money.”

Here is a chart from Buckingham showing that value stocks historically outperform when inflation is high.

3. Value Stocks Do Well After a Recession

Historically, this has been the case, as you can see from Bank of America in the chart below. This is most likely because inflation and interest rates rise during an economic rebound. For the reasons outlined above, both trends are negative for growth stocks relative to value.

4. Value Stocks Do Better When Covid Cases Come Down

The same is true during the epidemic, as you can see in the graphic below the Bank of America. That’s probably because when Covid cases decline, the economy’s prospects improve, suggesting a rise in inflation and interest rates – both of which have historically valued growth. With Omicron spreading so fast, the number of cases is likely to peak by the end of January. So this effect may start soon.

In the chart below, the light-blue line is the Covid case count. The dark-blue line is the outperformance relative to the increment by price. When the dark-blue line falls, it means that value stocks are doing better than growth stocks.

which stocks to like

Cycling names, banks, insurance companies and energy businesses populate the value camp. So those are the groups to consider.

Buckingham suggests these 12 names, most of which are in the areas above: Citigroup C,
+1.64%,
cvs health cvs,
+0.93%,
fedex fdx,
-0.39%,
General Motors GM,
+0.64%,
Kroger KR,
-2.83%,
metlife mate,
+0.74%,
Omnicom Group OMC,
-0.31%,
Pinnacle West Capital Pnw,
-0.51%,
Tyson Foods TSN,
+0.24%,
Verizon VZ,
-0.52%,
Westrock WRK,
+0.79%
and Whirlpool WHR,
+2.18%,

Bruce Kaiser of Cabot turnaround letter counters Credit Suisse CS,
+0.20%
In Banking and Drill-Quip DRQ,
+5.06%
Energy has one of his favorite names for 2022. He is bullish on value stocks now that the enthusiasm for “concept stocks” has broken down.

“The concept has become more and stock bid, and it occurs when the price is the best,” he says.

While concept stock founder, value companies keep grinding it and post the actual earnings, the money he goes. Years ago it happened long after the tech bubble burst.

“After 2000, Price outperformed for a decade,” he says.

expect a countertrend

There is no doubt that countertrend reversals will be on the way.

National Securities, says chief strategist Art Hogan, “These rotations are two sides Ovrple rotation tend to be lower.”

There is a factor here that can temporarily cool the rotation in the near term. Investors are about to learn that first-quarter growth is taking a toll as Omicron quarantines companies at a loss. Economic growth is likely to report reduced fears about inflation and rising interest rates is leading to migration in value.

But Omicron is so contagious, it will probably go as fast as it came. This is what we see in countries like South Africa and the UK. Then factors such as incentives, an inventory build, and strong consumer and corporate balance sheets will revive growth.

This would mean that growth-value dichotomy are linked to three strong development of the four main forces this year will continue – as run trend.

Michael Brush is a columnist for Businesshala. At the time of publication, he was owned by TSLA. Brush recommends TSLA, C, FDX and GM in his stock newsletter, brush up on stock, Follow him on Twitter @mbrushstocks.

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