Value Stocks Are Looking Remarkably Cheap, Even By Their Standards

Value Stocks Are Looking Remarkably Cheap, Even By Their Standards
Theodora Lee Joseph, CFA

almost 2 years ago1 min

Mentioned in story

Even in the current market rout, value stocks have been holding their own: if you’d invested in the MSCI World Value Index at the beginning of the year, you’d have made about 20% more than if you’d invested in its equivalent growth index. But if you think there are no gains left to be had, think again.

The chart above shows the “value spread” between growth stocks and value stocks – that is, how far the price premium of expensive stocks to cheap stocks has drifted from the historical average. A positive value reflects that value stocks are cheaper than growth stocks, and you can see that they’re now almost as cheap as they’ve ever been.

Now, it’s true that the spread has been narrowing slightly in the last few months: a potent cocktail of high inflation, rate hikes, and geopolitical turmoil have made growth stocks less appealing, persuading investors to look elsewhere for potential returns. But it’s also true that there’s a long way to go before we’re back to parity between the two. If the backdrop for growth stocks keeps deteriorating and investors continue to snub them in favor of value, there might still be significant gains up for grabs.

If that idea captures your imagination, the MSCI World Value Index (ticker: SWDA, expense ratio: 0.2%) is obviously a good place to start. You could also pick a few companies from the index (listed here), and build your own value portfolio from scratch: ExxonMobil and Chevron might be a good choice if you think oil and gas prices have further to go, while Coca-Cola is a slightly more defensive bet. Alternatively, there are plenty of other ETFs that focus on value stocks: you can find a list of them here.



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