Return of the growth stock

By Carolyn Bigda


(Money Magazine) -- The stock market can be divided into two camps. On one side you have shares of fast-growing -- but often high-priced -- firms whose earnings are expanding more rapidly than the market (think Google or Apple). Then there are value-oriented shares of boring but reliable businesses that go through cycles of being unloved and rediscovered (examples: Exxon Mobil and Boeing).

These groups take long turns beating each other. In fact, value had been leading since the 2000 crash. But after the financial crisis in 2008, growth has been quietly staging a comeback that's likely to continue. Here's why.

1. Economic conditions are ripe for a growth comeback...

It sounds counterintuitive, but these stocks "get more respect when earnings growth is harder to come by," says Dave Hintz, Russell Investments' head of U.S. equity research. After all, when the economy is hot, you can find profits anywhere. But in modest times like now, investors covet strong growers.

2. And value isn't cheap anymore

Since value investing is all about buying stocks priced below what they're truly worth, this strategy makes sense only when this group trades at a considerable discount. Based on price/earnings ratios, that's not the case today.

3. Meanwhile, growth is attractively priced

Historically the P/E ratio for growth stocks is more than eight points higher than that of value shares. Today that has narrowed to two points. When this gap is small, it's usually good news for growth.

4. Down for a decade, tech has already begun to rebound

Technology, a favorite sector among growth investors, had been the market's worst-performing group since 2000. But a recent survey by Russell Investments found that tech is now the sector that professional money managers are most bullish on. So there's hope yet.

5. Finally it's time to be contrarian

Andy Stephens, a portfolio manager at Artisan Funds, says money has been pouring out of growth funds. Since individual investors are terrible timers, this is actually a sign that growth may be ready to rally.  To top of page

Just the hot list include
Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Overnight Avg Rate Latest Change Last Week
30 yr fixed3.80%3.88%
15 yr fixed3.20%3.23%
5/1 ARM3.84%3.88%
30 yr refi3.82%3.93%
15 yr refi3.20%3.23%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Index Last Change % Change
Dow 31,961.86 424.51 1.35%
Nasdaq 13,597.97 132.77 0.99%
S&P 500 3,925.43 44.06 1.14%
Treasuries 1.39 0.03 1.98%
Data as of 10:43pm ET
Company Price Change % Change
Ford Motor Co 8.29 0.05 0.61%
Advanced Micro Devic... 54.59 0.70 1.30%
Cisco Systems Inc 47.49 -2.44 -4.89%
General Electric Co 13.00 -0.16 -1.22%
Kraft Heinz Co 27.84 -2.20 -7.32%
Data as of 2:44pm ET
Sponsors

Sections

Bankrupt toy retailer tells bankruptcy court it is looking at possibly reviving the Toys 'R' Us and Babies 'R' Us brands. More

Land O'Lakes CEO Beth Ford charts her career path, from her first job to becoming the first openly gay CEO at a Fortune 500 company in an interview with CNN's Boss Files. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.