NEW YORK (Reuters) – As U.S. stocks hit record highs, some investors are betting the market’s future gains will be increasingly driven by some of its lesser-loved companies.
Value stocks – shares of economically sensitive companies trading at multiples that are usually below those found on growth names – have been among the laggards in the market’s blistering rally from its March lows.
Some investors believe the relative cheapness of value stocks, which include energy companies, banks and industrial conglomerates, will catapult them to leadership if the nascent U.S. economic revival gains momentum, shifting focus from the big technology-related stocks that have led markets during the coronavirus pandemic.
The Russell 1000 Value index trades at almost 18 times earnings, up from 14 a year ago, and is up some 45% since late March. By comparison, the Russell 1000 Growth index trades at a multiple of 31, up from 22, and has gained over 70% in the same period.
“It’s an important part of validating the market’s rise, to have cyclicals and value sectors move,” said Nicholas Colas, co-founder of DataTrek Research.
“At the end of the day I think value can outperform, but it’s going to be very episodic.”
Comment here