Growth Investing vs. Value Investing in the 2023-2024 Stock Mar…

Traditionally, growth stocks flourish during periods of low interest rates and economic vitality. Under these conditions, growth stocks typically outperform value stocks considerably. They usually outdistance the S&P 500 as well. Yet, if the Federal Reserve hikes interest rates by 5.50% to 6.0% by the 2023 year-end, investors are likely to choose value stocks over growth stocks.

In fact, on May 3, 2023, the Federal Reserve’s target range for the quarterly percentage point increase in the interest rate equaled 5.0% to 5.25%. Subsequently, the greatest number of investors still buying growth stocks are typically optimistic long-term investors.

Growth stocks are issued by public companies that show revenue, profit or cash-flow increases at significantly greater rates than their competitors. They also exhibit growth in these areas that surpasses that of the market as a whole. It is the fast rate of price appreciation that these stocks offer that attracts the strong interest of investors.

Growth stocks are usually issued by small, relatively new or versatile companies that are rising or standing out within their industries due to their innovative ideas, products and services. They may be initiating new tech advancements that give them a definite competitive edge in their industries.

These companies may assume debt for rapid business expansion. They typically reinvest their revenues and raise their production levels. In addition, they may engage in hiring campaigns to boost company growth or seek other company acquisitions.

Growth investing entails determining quality stocks to buy according to the long-term expansion projections for their issuing companies. Investors who choose these stocks place greater emphasis on the future growth potential of a company than on its current expansion or market value.

When interest rates are lower and corporate revenues are increasing, these stocks typically perform well in the market. Since growth stocks are often more volatile than the market in general, investor selling rates of these stocks are frequently higher during times of uncertain economic conditions.

There are some definite risks involved with investing in growth stocks. For example, the majority of growth stocks are priced to include future expansion expectations. They typically trade at high rates in relation to their company market valuations. For this reason, these stocks must produce revenue increases beyond what would otherwise be impressive to satisfy their investors. Otherwise, disappointed investors may choose to sell these stocks rapidly, resulting in an immediate downswing in stock ratings.

The following factors can help determine the ideal quality growth stock choices for investing:

• Revenue Increases. Quality growth stocks will show impressive sales increases. It is helpful to examine both backward and forward-looking growth patterns as well as future projections by trusted financial analysts.

• Earnings Gains. Ideal growth stock choices for investing should also exhibit significant increases in profit.

• Share Price Growth. Fast growth in earnings and an increase in sales support impressive stock market performance that can outdistance competitors.

• Debt Assumption Maintenance. If growth companies assume too much debt, they may suffer from growth depletion. High loads of debt assumption are acceptable for growth companies so long as they can sustain their degrees of debt.

Growth stocks are issued by innovative companies that provide products or services that can enhance consumers’ lifestyles. When interest rates are high, future cash flows become less attractive and less valuable. This is because as interest rates increase, future earnings in current dollars carry higher discounted rates.

For these reasons, growth stocks experience underperformance when interest rates are high or on the rise. Yet, when the Federal Reserve lowers interest rates, growth stocks will regain higher performance levels.

Forbes financial experts offer growth stock investing projections from Bank of America analysts. These analysts report that if the Fed lowers interest rates during 2023, the following seven stocks are among the best recommendations for growth investing:

Amazon (AMZN) +12.2%

Chipotle Mexican Grill (CMG) +12.7%

Alphabet (GOOG, GOOGL) +11.8%

Eli Lilly (LLY) +19.4%

Match (MTCH) +13.0%

Progressive (PGR) +10.9%

SolarEdge Technologies (SEDG) +21.9%

The Bank of America growth stock recommendation list has been issued since 1999. The stocks included must satisfy these four criteria:

1. These company stocks are required to show a Bank of America vs. Consensus Earnings Surprise Rating equaling 1.

2. These growth stocks must gain “buy” approval from BofA analysts.

3. They are required to maintain a rating of 1 or 2 for BofA vs. Consensus Earnings Surprise Rating for no less than 10 months.

4. Stocks appearing on this list must have the greatest five-year projected EPS growth rates.

Throughout the previous and current periods of high interest rates per the Federal Reserve, value stocks have been favored above growth stocks as the best investment choices. When investing in value stocks, investors are looking for safe investments in high-caliber companies with attractive fundamentals and relatively low share prices.

Value investing entails choosing stocks according to recognized value in their issuing companies. Share values are generally determined by evaluating basic criteria, including the price-to-book (P/B) ratio and the price-to-earnings (P/E) ratio. Additional criteria analyzed are the price-to-sales ratio as well as the debt-to-equity ratio.

Value stock investors look for stocks that are currently trading lower than their inherent value. By choosing these stocks, investors hope that the true worth of these investments will, in time, be reflected by their market value. Quality value stocks are ideal investments during economic periods with high interest rates.

Forbes writers offer the value stock investing projections from Bank of America analysts. These analysts list the following seven stocks as among the best recommendations for value investing for 2023-2024:

Ameriprise Financial, Inc. (AMP)

CF Industries Holdings Inc. (CF)

Exelon Corp. (EXC)

Nucor Corporation (NUE)

NVR, Inc. (NVR)

Principal Financial Group Inc. (PFG)

T-Mobile US, Inc. (TMUS)

The method used for selecting the best value stocks for investors is identical to the method used to choose the ideal growth stocks for 2023-2024 investing.

Growth stocks are issued by companies that are experiencing greater than average increases in sales or profits. As these companies grow, their stocks have a significant probability of outperforming the stocks of competitors over time. In contrast, value stocks are issued by companies that analysts perceive as underpriced according to their companies’ performance.

According to their companies’ current status, some growth stocks may seem overpriced. Yet, these stocks may have projections of growth that may surpass their present-day valuations. Value stocks, however, are deemed well-priced in alignment with their current companies’ metrics.

Growth stocks frequently have rather high P/E and P/S ratios. Yet they often produce reliable annual revenue increases that are in double-digit percentages or higher. Value stocks usually have compelling fundamental metrics of valuation, including low ratios for P/E and for P/S.

While growth stocks may not be profitable and will not pay dividends, value stocks are usually issued by companies that show predictable profits and frequently pay attractive dividends. Growth stocks are typically viewed as significantly volatile, relatively high-risk stocks with the potential for impressive upside at near-term. In contrast, value stocks are usually viewed as low-risk, reliable investments that carry limited potential for near-term upside.

Both growth stocks and value stocks can be advisable investments according to the current state of the economy and market conditions. By evaluating stocks and their issuing companies carefully, investors can enjoy attractive profits in any market.

By investing in growth stocks during periods of lower interest rates, and choosing value stocks for investments when higher interest rates are in effect, investors can benefit from good returns. Before investing in the stock market, it is always advisable to consult a qualified financial advisor to ensure the best possible results.

Loading...

Ellen L. Gilmer is a published author, copywriter, speaker and performance artist living in New York City. She has spoken and performed internationally and enjoys sharing her experiences with others. She has published two books with the Pentland Press Ltd. and Carnegie Publishing Ltd. in England: La Belle Famille, a novel, and Free Style Run of the Heart, a book of dramatic monologues with poetic songs, and she is now an active KDP Amazon publisher. Her third book, Song Poems from the Cumulus Cloud and Creative Essays, was published by Create Space, an Amazon company. Ellen is also a journalist-correspondent for the International Press Association and a Cultural Ambassador. She welcomes all comments and feedback from her readers.