This is the window of time when value can outperform growth in the stock market

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So far this year, large-cap value stocks have been outperforming growth stocks. Here’s how long the trend can last. Companies categorized as “value” are expected by analysts to increase earnings more quickly than their growth peers.

But so far this year, large-cap value stocks — those that typically trade lower to book value and earnings and have slower growth rates — have been outperforming growth stocks.

See this one-year chart through Jan. 14 showing total returns, with dividends reinvested, for the S&P 500 Index SPX, -1.84% and two overlapping subsets of the benchmark, the S&P 500 Growth Index and the S&P 500 Value Index: Another way to test Buckingham’s statement is to look at relative forward price-to-earnings multiples for exchange traded funds that track all three groups of large-cap stocks:

Value’s surprise earnings power Investors rightfully expect growth stocks to increase sales and earnings more quickly than value stocks. Looking at weighted aggregate consensus estimates for the ETFs, as calculated by FactSet, analysts expect the growth group to increase sales more quickly, as usual. But look at the earnings-per-share estimates:

There are 239 stocks in the S&P 500 Growth Index, and it is highly concentrated, with the five largest holdings of the SPDR S&P 500 Growth ETF making up nearly 44% of the portfolio. The biggest holding is Apple Inc AAPL, -1.89%, at 13.3%, followed by Microsoft Corp. MSFT, -2.43%, at 11.4%, then Alphabet Inc.’s Class A GOOGL, -2.50% and Class C GOOG, -2.50% shares at a combined 8%. Amazon.com Inc. AMZN, -1.99% is at 7%, and Tesla Inc. TSLA, -1.82% at 4.2%.

 

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