Growth and value are two fundamental approaches in stock and stock mutual fund investing. Many growth stock mutual fund managers look for stocks of companies that they believe offer strong earnings growth potential, while value fund managers look for stocks that appear undervalued by the marketplace. Some fund managers combine the two approaches.
While earnings of some companies may be depressed during periods of slower economic growth, growth companies generally seek to achieve high earnings growth regardless of economic conditions. Emerging growth companies are those that may have the potential to achieve high earnings growth, but have not established a history of strong earnings growth.
Value stocks are those that have generally have fallen out of favor in the marketplace and are considered bargain-priced compared with book value, replacement value, or liquidation value. Typically, value stocks are priced much lower than stocks of similar companies in the same industry. This lower price may reflect investor reaction to recent company problems, such as disappointing earnings, negative publicity, or legal problems, all of which may raise doubts about the companies long-term prospects. The value group may also include stocks of new companies that have not been recognized by investors.
The primary measures used to define growth and value stocks are the price-to-earnings ratio (the price of a stock divided by the current years earnings per share) and the price-to-book ratio (share price divided by book value per share). Growth stocks usually have high price-to-earnings and price-to-book ratios, which means that these stocks are relatively high-priced in comparison with the companies net asset values. In contrast, value stocks have relatively low price-to-earnings and price-to-book ratios.
Less sensitive to economic conditions than broader market
Currently priced below similar companies in industry
* Past performance is not indicative of future results.
Growth and value: Complementary investment styles
Following a specific investment style, such as growth or value, provides investment managers with guidelines for choosing stocks. Growth fund managers look for high-quality, successful companies that have posted strong performance and have expectations to likely continue to do well, though there are no guarantees. Of course, there is no assurance that this forecast will be attained. Investors are willing to pay high price-to-earnings multiples for these stocks in expectation of selling them at even higher prices as the companies continue to grow. The risk in buying a given growth stock is that its lofty price could fall sharply on any negative news about the company, particularly if earnings disappoint Wall Street.
On the other side, value fund managers look for companies that have fallen out of favor but still have good fundamentals. They buy these stocks at prices below the stocks average historic levels or below the current levels in their industry groups. Many value investors believe that stocks become value stocks when investors overreact to negative events.
The idea behind value investing is that stocks of good companies may bounce back in time when the true value is recognized by other investors. But this recognition of value may take time to emerge and, in some cases, may never materialize.
Which strategy — growth or value — is likely to have higher return potential over the long term? The battle between growth and value investing has been going on for years, with each side offering statistics to support its arguments.Some studies show that value investing has outperformed growth over extended periods of time on a value-adjusted basis.Value investors argue that a short-term focus can often push stock prices to low levels, which, in turn, can create great buying opportunities for value investors.
Both growth and value stocks have taken turns leading and lagging one another during different markets and economic conditions.
, DST Systems, Inc. Based on calendar-year returns from 1993 to 2017. Growth stocks are represented by a composite of the S&P 500/BARRA Growth index and the S&P 500/Citi Growth index. Value stocks are represented by a composite of the S&P 500/BARRA Value index and the S&P 500/Citi Value index. Past performance is not a guarantee of future results. Index performance does not reflect the effects of investing costs and taxes. Actual results would vary from benchmarks and would likely have been lower. It is not possible to invest directly in an index. © 2018, DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.(CS000170)
For many mutual fund investors, however, there may not be an absolute advantage to any single approach to investing over a long period of time. Instead of choosing only one approach, individual investors may strive for the best-possible returns while managing risk by combining growth and value investing. This approach allows investors to potentially gain throughout economic cycles in which the general market situations favor either the growth or value investment style.
Example:Value stocks, often stocks of cyclical industries, generally tend to do well early in an economic recovery; growth stocks, on the other hand, tend to lead bull markets, which are normally fueled by falling interest rates and increased company earnings. Also, because the two groups of stocks tend not to move in the same direction or to the same extent, investors can potentially enhance returns and manage risk by combining the two approaches.
A financial professional can help you decide. Lets talk.
© 2018 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.
Please always consider the charges, risk, expenses, and investment objectives carefully before purchasing any financial product, including mutual funds or variable annuities. For a prospectus containing this and other information, please contact a financial professional. Read it carefully before you invest or send money.
This article is provided for your informational purposes only.
Please be advised that this material is not intended as legal or tax advice.Accordingly, any tax information provided in this material is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.The tax information was written to support the promotion or marketing of the transactions(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent advisor.
Please be advised that this materials is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transactions(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent advisor.
AXA Equitable Life Insurance Company (NY, NY) issues life insurance and annuity products. Securities offered through AXA Advisors, LLC, memberFINRASIPC. AXA Equitable and AXA Advisors are affiliated and do not provide legal or tax advice.
Already working with a financial professional?
AXA is the brand name of AXA Equitable Financial Services, LLC and its family of companies, including AXA Equitable Life Insurance Company (NY,NY), MONY Life Insurance Company of America (AZ stock company, administrative office: Jersey City, N.J.), AXA Advisors, LLC (member FINRA, SIPC), and AXA Distributors, LLC. The obligations of AXA Equitable Life Insurance Company and MONY Life Insurance Company of America are backed solely by their claims-paying ability. AXA Equitable Holdings, Inc. is a publicly traded corporation, and it and its subsidiaries are currently using trademarks including the AXA name, AXA logo and associated trademarks of AXA SA under license.
© 1999-2019 AXA Equitable Life Insurance Company
1290 Avenue of the Americas, New York, NY 10104
); /* YOUR JQUERY CODE GOES HERE!!! */ else setTimeout(function() window.status = B; waitForJQuery(); ,2500); (); (); var dcsMultiTrack = function() // do nothing for now.