Value Investing Regains Appeal: Top-Ranked ETFs & Stocks

The stock market has hit multiple highs lately powered by improving sentiments with fears of recession abating, corporate profits in good shape and U.S.-China trade tensions easing with hopes of an imminent phase one deal. The Fed third rate cut also gave lifted investors’ spirits.

While most of the corners are shining in the latest rally, investors are chasing undervalued stocks. Value stocks refer to those that trade below their intrinsic value.

This is because value stocks have lagged the stocks of fast-growing companies throughout most of the decade-long bull rally. The S&P 500 value index has risen 136% over the past 10 years versus 220% for large growth companies. According to a strategist at BMO Capital Markets, the valuation gap between value and growth stocks hit an extreme level in mid-2018 and has grown further since then. This has made value stocks inexpensive again. Per analysts at Bank of America, value stocks are trading at one of their cheapest levels relative to momentum stocks.

Per WSJ, money managers, and individual investors stepped up their buying of shares of value stocks, including banks and manufacturers, this month. In fact, allocations to bank stocks this month notched the biggest month-over-month change in exposure in more than a year.

The renewed interest has led to gains of 12% for the S&P 500 Value Index over the past three months, more than double the increase of the S&P 500 Growth Index. The latest rally helped the value index to outperform the growth counterpart from a year-to-date look and put it on pace for its strongest year since 2013.

A recent Bank of America survey shows that more than a third of the 230 fund managers they polled expect value stocks to post better returns than growth stocks over the next 12 months. This reflects and an increase of 21% from the October survey and the third-biggest month-over-month swing since 2007.

Given the value comeback, we have presented a bunch of ETFs & stocks with a top Zacks ETF Rank #1 (Strong Buy) or 2 (Buy) that have been leading over the past three months and will likely outperform in the coming weeks, especially in the current scenario.

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Disclosure: Zacks.com contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any specific ...

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