diff --git "a/5aeb230a-cabb-48f6-8562-3670f05465ac.json" "b/5aeb230a-cabb-48f6-8562-3670f05465ac.json" new file mode 100644--- /dev/null +++ "b/5aeb230a-cabb-48f6-8562-3670f05465ac.json" @@ -0,0 +1,40 @@ +{ + "interaction_id": "5aeb230a-cabb-48f6-8562-3670f05465ac", + "search_results": [ + { + "page_name": "Value or Growth Stocks: Which Is Better?", + "page_url": "https://www.investopedia.com/articles/professionals/072415/value-or-growth-stocks-which-best.asp", + "page_snippet": "Learn about the age-old debate about value versus growth stocks, and how determining which kind is better depends on a number of factors.Growth stocks are those of companies that are considered to have the potential to outperform the overall market over time because of their future potential. Value stocks are classified as companies that are currently trading below what they are really worth and will thus provide a superior return. Value stocks are classified as companies that are currently trading below what they are really worth and will thus provide a superior return. Which category is better? The comparative historical performance of these two sub-sectors yields some surprising results. Value stocks are usually larger, more well-established companies that trade below the price that analysts feel the stock is worth, depending upon the financial ratio or benchmark used as a comparison. For example, the book value of a company\u2019s stock may be $25 a share based on the number of shares outstanding divided by the company\u2019s capitalization. For example, the book value of a company\u2019s stock may be $25 a share based on the number of shares outstanding divided by the company\u2019s capitalization. Therefore, if it trades for $20 a share at the moment, then many analysts would consider this to be a good value play.", + "page_result": "\n\n\n\n\n\n\n\n\n\n\nValue or Growth Stocks: Which Is Better?\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n\n\n\n\n\n
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Table of Contents\n
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Table of Contents\n\n\n
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  • An Overview
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  • Value Stocks
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  • Growth Stocks
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  • Key Differences
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  • Examples
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  • FAQs
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  • The Bottom Line
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  • Stocks
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  • Growth Stocks
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Value or Growth Stocks: Which Is Better?

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\nBy\n
Mark P. Cussen\n
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\nMark Cussen, CMFC, has 13+ years of experience as a writer and provides financial education to military service members and the public. Mark is an expert in investing, economics, and market news.\n
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Updated July 27, 2023
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\nMarguerita is a Certified Financial Planner (CFP), Chartered Retirement Planning Counselor (CRPC), Retirement Income Certified Professional (RICP), and a Chartered Socially Responsible Investing Counselor (CSRIC). She has been working in the financial planning industry for over 20 years and spends her days helping her clients gain clarity, confidence, and control over their financial lives.\n
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Value vs. Growth Stocks: An Overview

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Growth stocks are those of companies that are considered to have the potential to outperform the overall market\u00a0over time because of their future potential. Value stocks are classified as companies that are currently trading below what they are really worth and will thus provide a superior return. Which category is better? The comparative historical performance of these two sub-sectors yields some surprising results.\n

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Key Takeaways

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  • Growth stocks are expected to outperform the overall market\u00a0over time because of their future potential.
  • Value stocks are thought to trade below what they are really worth.
  • The question of whether a growth or value stock strategy is better must be evaluated in the context of the investor's time horizon and risk.
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Value Stocks

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Value stocks are usually larger, more well-established companies that trade below the price that analysts feel the stock is worth, depending upon the financial ratio or benchmark used as a comparison. For example, the book value of a company\u2019s stock may be $25 a share based on the number of shares outstanding divided by the company\u2019s capitalization. Therefore, if it trades for $20 a share at the moment, then many analysts would consider this to be a good value play.\n

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Stocks can become undervalued for many reasons. In some cases, public perception will push the price down, such as if a major figure in the company is caught in a personal scandal or the company does something unethical. But if the company\u2019s financials are still relatively solid, then value-seekers may see this as an ideal entry point, because they figure that the public will soon forget about whatever happened and the price will rise to where it should be.\n

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Value stocks typically trade at a discount to either the price to earnings (P/E), book value, or cash flow ratios. Of course, neither outlook is always correct, which means some stocks can be classified as a blend of these two categories. As such, they are considered to be undervalued but also have some potential above and beyond this. Morningstar classifies all of the equities and equity funds that it ranks into either a growth, value, or blended category.
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Growth Stocks

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Analysts consider growth stocks to have the potential to outperform either the overall markets or a specific subsegment of them for a period of time. These stocks can be found in small-, mid-, and large-cap sectors and can only retain this status until analysts feel that they have achieved their potential.\n

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Growth companies are considered to have a good chance for considerable expansion over the next few years, either because they have a product or line of products that are expected to sell well or because they appear to be run better than many of their competitors and are thus predicted to gain an edge on them in their market.
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Make sure you choose the right investment strategy and stocks that align with your objectives and investment goals.

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Value vs. Growth Stocks: Key Differences

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The table below highlights some of the key differences that exist between value and growth stocks.\n

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Characteristics of Value and Growth Stocks: Key Differences
Value\u00a0StocksGrowth Stocks
PriceUndervalued, priced lower than the broader marketOvervalued, priced higher than the broader market
Earnings\u00a0Low P/E valuesHigh earnings growth
Risk Relatively stable with low volatilityHigh risk with more volatility
DividendsHigh dividend yieldsLow or no dividend yields
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Value vs. Growth: Performance

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When it comes to comparing the historical performances of the two respective sub-sectors of stocks, any results that can be seen must be evaluated in terms of time horizon and the amount of volatility and, thus, any risk that was endured to achieve them.\n

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Value stocks are at least theoretically considered to have a lower level of risk and volatility associated with them because they are usually found among larger, more established companies. And even if they don\u2019t return to the target price that analysts or investors predict, they may still offer some capital growth. One other thing to keep in mind is that these stocks also often pay dividends as well.\n

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Growth stocks, meanwhile, usually refrain from paying out dividends. Instead, they reinvest retained earnings back into the company to expand. The probability of loss for investors with growth stocks can also be greater, particularly if the company can't keep up with growth expectations.\n

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For example, a company with a highly touted new product may indeed see its stock price plummet if the product is a dud or if it has some design flaws that keep it from working properly. Growth stocks, in general, possess the highest potential reward, as well as risk, for investors.\n

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Studies

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Although the passage above suggests that growth stocks would post the best numbers over longer periods, the opposite has actually been true.\n

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Many studies point to value investing having outperformed the growth style over long-term periods. But looking at more recent data, value did outperform for the first 10 years of the 2000s, but growth outperformed over the last 10 years. Take note that dividends likely play a key role in helping value outperform over longer periods of time.\n

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Going back to 1926, value had numerous periods of outperformance relative to growth. Again, despite the long-term outperformance, growth has reigned supreme over the last decade. With that, the S&P 500 is made up of roughly 40% of technology stocks.\n

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Consult a financial professional if you're unsure about what stocks may work well for you and your goals.

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Examples of Value and Growth Stocks

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Value

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Value stocks tend to fall in several key industries that are exposed to areas of the market that are sensitive to economic swings. Keep in mind that these are things that people generally tend to need even when times get tough. They include consumer staples, energy, financials, industrials, and materials. The following are some examples of value stocks that fall in these industries:\n

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  • Berkshire Hathaway (BRK.A/BRK.B)
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  • Deere & Company (DE)
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  • Taiwan Semiconductor (TSM)
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Growth

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As noted above, growth stocks are those of companies that are expected to grow at a more rapid pace than the overall market. As such, they tend to outperform the market. Here are some examples of growth stocks:\n

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What Percent of the S&P 500 Is Growth vs. Value?

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The S&P 500 is not broken down into growth and value stocks. However, the two sectors that are often considered growth are technology and consumer discretionary, which make up 40% of the index. Meanwhile, value sectors\u2014financials, industrials, energy, and consumer staples\u2014make up roughly 29% of the index.

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What Is an Example of a Value Stock vs. Growth Stock?

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An example of a value stock would be a bank, such as JPMorgan Chase (JPM). While key growth is often found in the technology space, such as Google (GOOG).\u00a0


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Are Growth or Value Funds Better for the Long-Term?

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Value has outperformed growth stocks over the longer-term, however, growth has been outperforming for the last 10 years.

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The Bottom Line

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The decision to invest in growth vs. value stocks is ultimately left to an individual investor\u2019s preference, as well as their personal risk tolerance, investment goals, and time horizon. It should be noted that over shorter periods, the performance of either growth or value will also depend in large part upon the point in the cycle that the market happens to be in.\n

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For example, value stocks tend to outperform during bear markets and economic recessions, while growth stocks tend to excel during bull markets or periods of economic expansion. This factor should, therefore, be taken into account by shorter-term investors or those seeking to time the markets.\n

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Article Sources
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Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our\neditorial policy.
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  1. Morningstar. "Fact Sheet: The New Morningstar Style Box\u2122 Methodology."

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  2. Touchstone Investments. "Growth vs. Value Equities Insights."

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  3. Nasdaq. "Value vs Growth: A Brief Historical View."

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  4. S&P Global. \u201cS&P 500.\u201d

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Related Terms
\n
Growth Stock: What It Is, Examples, vs. Value Stock\n
A growth stock is a publicly traded share in a company expected to grow at a rate higher than the market average.
\nmore
\n
Investment Style: Meaning, Factors, Different Styles\n
Investment style refers to the way that a portfolio manager or investor orients their investments, e.g. towards growth or value, etc.
\nmore
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Cyclical Stock: What It Is, Examples, Risk and Return Potential\n
Cyclical stocks are stocks with prices that are affected by macroeconomic or systematic changes in the overall economy. They rise and fall with the economy.
\nmore
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Value Stock: What It Is, Examples, Pros and Cons\n
A value stock is a stock that tends to trade at a lower price relative to its fundamentals, making it appealing to value investors.
\nmore
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Growth Investing: Overview of the Investing Strategy\n
Growth investing is a stock-buying strategy that aims to profit from firms that grow at above-average rates compared to their industry or the market.
\nmore
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Common Stock: What It Is, Different Types, vs. Preferred Stock\n
Stock is a security that represents ownership in a corporation. Stock can be either common or preferred. This article discusses the differences between the two.
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\n\n\n\n\n\n\n\n\n\n", + "page_last_modified": "" + }, + { + "page_name": "Value Stock: What It Is, Examples, Pros and Cons", + "page_url": "https://www.investopedia.com/terms/v/valuestock.asp", + "page_snippet": "A value stock is a stock that tends to trade at a lower price relative to its fundamentals, making it appealing to value investors.A value stock is a security trading at a lower price than what the company\u2019s performance may otherwise indicate. Investors in value stocks attempt to capitalize on inefficiencies in the market, since the price of the underlying equity may not match the company\u2019s performance. A value stock can generally be contrasted with a growth stock. A value stock is trading at levels that are perceived to be below its fundamentals. A value stock is trading at levels that are perceived to be below its fundamentals. Common characteristics of value stocks include high dividend yield, low P/B ratio, and a low P/E ratio. Common characteristics of value stocks include high dividend yield, low P/B ratio, and a low P/E ratio. A value stock typically has a bargain-price as investors see the company as unfavorable in the marketplace.", + "page_result": "\n\n\n\n\n\n\n\n\n\n\nValue Stock: What It Is, Examples, Pros and Cons\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n\n\n\n\n\n
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Table of Contents\n
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Table of Contents\n\n\n
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  • What Is a Value Stock?
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  • Understanding Value Stocks
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  • Finding Value Stocks
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  • Why Are Some Stocks Undervalued?
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  • Value Stocks vs. Growth Stocks
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  • Example
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  • FAQs
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  • The Bottom Line
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  • Stocks
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  • Value Stocks
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Value Stock: What It Is, Examples, Pros and Cons

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Updated May 08, 2023
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What Is a Value Stock?

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A value stock refers to shares of a company that appears to trade at a lower price relative to its fundamentals, such as dividends, earnings, or sales, making it appealing to value investors.\n

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A value stock can generally be contrasted with a growth stock.\n

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Key Takeaways

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  • A value stock is trading at levels that are perceived to be below its fundamentals.
  • Common characteristics of value stocks include high\u00a0dividend yield, low P/B ratio, and a low P/E ratio.
  • A value stock typically has a bargain-price as investors see the company as unfavorable in the marketplace.
  • A value stock is different from a growth stock which is a riskier equity with potentially greater upside.
  • Value stocks often issue dividends as the company has less need for capital for growth; meanwhile, growth stocks tend to rely on cash for development.
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Investopedia / Jake Shi

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Understanding Value Stocks

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A value stock is a security trading at a lower price than what the company\u2019s performance may otherwise indicate. Investors in value stocks attempt to capitalize on inefficiencies in the market, since the price of the underlying equity may not match the company\u2019s performance.\n

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Common characteristics of value stocks include high dividend yield, low price-to-book ratio (P/B ratio), and a low price-to-earnings ratio (P/E ratio). Investors can find value stocks using the \"Dogs of the Dow\" investing strategy by purchasing the 10 highest dividend-yielding stocks on the Dow Jones at the beginning of each year and adjusting the portfolio every year thereafter.\n

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In contrast to value stocks, growth stocks are equities of companies with strong anticipated growth potential. A balanced, diversified portfolio will hold both value stock and growth stocks. Investment managers refer to these as a blend fund.\n

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How to Determine and Invest in Value Stocks

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A value stock will have a bargain price as investors see the company as unfavorable in the marketplace. A value stock will most likely come from a mature company with a stable dividend issuance that is temporarily experiencing adverse events. However, companies that have recently issued equities have high-value potential as many investors may be unaware of the entity. Investors can invest in these value stocks directly or by buying value exchange traded funds (ETFs) and value mutual funds.\n

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There are several ways you can analyze a stock to determine whether it is undervalued. These methods include:\n

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  • Analyze the Price-to-Earnings Ratio (PE): This valuation tool compares the stock price to the earnings per share (EPS) of the company. A stock may be cheap and could be a value stock if its PE ratio is lower than that of its rivals in the same industry or the historical average.
    • \n
  • Analyze the Price-to-Book Ratio (PB): This metric contrasts the share price of a stock with its book value. A P/B ratio less than 1 indicates that the stock may be trading below its book value, which could be an indication of value.
    • \n
  • Check the Dividend Yield: A value stock may be indicated by a high dividend yield. A stock may be inexpensive and offer an alluring return in the form of dividends if its dividend yield is higher than the industry average or historic average.
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  • Evaluate Company Growth: This includes the company's historical and anticipated earnings growth. The stock may be viewed as undervalued and a potential value stock if its price does not correspond to the predicted earnings growths.
    • \n
  • Compare Against the Industry: Consider the stock's position within its industry and the general market environment while performing an industry and market analysis. A value stock may be identified if it is selling at a lower valuation than its competitors or the overall market.
    • \n
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Why Are Some Stocks Undervalued?

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There's no single reason a stock is undervalued. In some cases, stocks may be undervalued as a result of investor mood and market dynamics. Stock prices may drop as a result of unfavorable news or pessimism about a certain industry, business, or market, potentially resulting in discounted possibilities. A firm may become undervalued as a result of poor financial performance, unfavorable earnings surprises, managerial problems, or legal challenges. For investors, temporary setbacks or market overreactions to bad news can present purchasing opportunities.
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On the other hand, stocks may be undervalued based on more macroeconomic concerns. The state of the economy might affect stock valuations. Stock prices may drop during recessions or other uncertain times, undervaluing them in comparison to their intrinsic value. Stocks in sectors that are presently unpopular or going through a downturn can be undervalued.\n

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Due to a lack of investor knowledge, stocks of smaller companies or those active in specialized markets may be undervalued. A company's stock may trade at a lower valuation compared to its genuine value if it is underfollowed or ignored by analysts and investors. Simply put, investors may overlook good stocks in turn for ones that are more popular or more commonly receive media attention.
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A single company can transition from a growth stock to a value stock. For example, once the company has achieved success, investors now measure it differently.

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Value Stocks vs. Growth Stocks

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There's fundamental differences that distinguish value stocks from growth stocks.\n

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Philosophy

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The goal of value investing is to identify stocks that are cheap in comparison to their intrinsic value. Investors look for stocks that are trading for less than their intrinsic value. Meanwhile, growth investing focuses on stocks of businesses that have a potential for above-average growth in terms of profits, sales, or market share. Companies with significant growth potential, cutting-edge goods or services, and the potential to generate returns above average are given priority by growth investors.
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Valuation

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Traditional valuation indicators like PE ratios, PB ratios, or dividend yield are frequently used to identify value stocks. These measurements assist in identifying whether a stock is trading at a lower valuation than its fundamental indicators or its competitors in the same sector. Alternatively, growth stocks are frequently assessed using unconventional valuation techniques. This includes the price-to-sales (P/S) ratio or the forward PE ratio. Instead of reflecting current earnings or book value, these measurements show predictions for future growth.
\n

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Company Profile

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Value stocks are frequently linked to solid, well-established businesses that operate in dependable sectors. Although their development rates may be slower, they are seen as financially reliable and may be undervalued by the market. Growth stocks are often found in sectors that have a strong potential for growth, such as emerging markets, healthcare, or technology. These businesses may have greater volatility because they are frequently in their early phases and reinvesting profits in growth.
\n

\n
\n

Dividends

\n

Value stocks frequently place a strong emphasis on dividend payments, and investors may look for shares in companies that offer high dividend yields. These equities are more common in mature industries, consumer staples, and utility sectors. This is because the company may not need as much capital for growth as the company has already scaled. Alternatively, rather than paying dividends, growth stocks frequently place a higher priority on reinvesting profits in the expansion of the business. These businesses frequently have to use their resources for marketing, R&D, or business expansion.
\n

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Risk

\n

Value stocks are considered relatively less risky compared to growth stocks. They are typically more stable and have lower volatility. The potential for capital appreciation may be moderate, but they often offer steady income through dividends. In addition, the company is already established so may have already overcome many risks start-up or infant companies face. Meanwhile, growth stocks carry higher risk due to their higher volatility and market expectations. While they offer the potential for significant capital appreciation, they may also experience greater price fluctuations and have a higher chance of underperforming during market downturns.\n

\n
\n
\nValue Stocks\n
    \n

  • Seeks to find undervalued stocks

    • \n

  • Often uses traditional valuation metrics

    • \n

  • Are usually more established companies

    • \n

  • Often issue dividends as there is less need for cashflow

    • \n

  • May be less risky as the company is already established

    • \n
\n
\n
\nGrowth Stocks\n
    \n

  • Seeks to find companies set to grow

    • \n

  • Often uses untraditional valuation metrics

    • \n

  • Are usually younger companies

    • \n

  • Often do not issue dividends as there is resource constraints

    • \n

  • May be more risky as the company is yet to prove its business model or operations

    • \n
\n
\n
\n
\n

Example of Value Stock

\n

Honda Motor (HMC) produces and sells outboard engines, power generators, lawn mowers, and automobiles all over the world. Because the company has a less comprehensive vehicle lineup compared to rivals, it may fly under the radar with some investors. For instance, Honda does not offer a huge SUV or a full-sized truck. As a result, Honda is vulnerable to losing market share if consumer preferences move further in favor of those larger vehicles.
\n

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\n

However, the manufacturer also possesses other traits that might be beneficial in the long run. One is that Honda has a reputation for quality, particularly with regard to fuel-efficient vehicles. The leadership group is skilled at organizing. The company's is currently embarking on a cost-cutting plan to decrease expenses. In addition, Honda aims to have 100% of their vehicles be electric in North America by 2040.\n

\n
\n

On the stock side, as of May 2023, Honda's stock had a P/E ratio of 8.57. This is notably less than rival companies such as Toyota, who boasts a P/E ratio as of May 5, 2023 of 10.14. Also, Honda boasts a stronger dividend yield. As of May 2023, Honda's dividend yield was 2.87%.
\n

\n
\n

Are Value Stocks a Good Investment?

\n

Value stocks may be a good investment for investors looking for lower risk equities. Value stocks tend to relate to companies that have already been established but are undervalued by the market. For investors not willing to invest in start-ups or unknown entities, value stocks may make a good alternative.

\n
\n
\n

How Do You Profit From a Value Stock?

\n

You can profit from a value stock by buying the equity and holding it. As opposed to attempting to swing trade or look for quick appreciation of capital, value stocks may take longer to appreciate in value as the market comes to fully realize its value. In addition, you can make money from value stocks as they generally issue dividends, allowing for cash proceeds during this holding period.

\n
\n
\n

Are Value Stocks High Risk?

\n

Value stocks are generally considered less risky than growth stocks. However, consider that both value stocks and growth stocks are equities which are generally more risky than other types of investments.

\n
\n
\n

Are Value Stocks Better Than Growth Stocks?

\n

Depending on a number of variables, such as an individual's investment goals, risk tolerance, and market conditions, value stocks or growth stocks may be preferable. Value and growth stocks each have advantages, and each investment strategy might perform differently depending on the market conditions.\u00a0

\n
\n
\n

The Bottom Line

\n

A value stock is a class of stock that the market perceives as being cheap in comparison to its intrinsic worth. Its price is lower compared to its fundamental metrics, such earnings, book value, or cash flow, and this is one of its defining characteristics. Value stocks are frequently linked to businesses with strong financials, consistent operations, and well-established market positions.
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Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our\neditorial policy.
\n
    \n

  1. Honda. "Honda Targets 100% EV Sales in North America by 2040."

    2. \n

  2. Barron's. "HMC."

    3. \n

  3. YCharts. "Toyota Motor Corp."

    4. \n
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Related Terms
\n
Growth Stock: What It Is, Examples, vs. Value Stock\n
A growth stock is a publicly traded share in a company expected to grow at a rate higher than the market average.
\nmore
\n
Who Was Benjamin Graham? \n
Benjamin Graham was an influential investor who is regarded as the father of value investing. Learn more about his work, investment strategies, and impact.
\nmore
\n
Dividend Yield: Meaning, Formula, Example, and Pros and Cons\n
The dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price.
\nmore
\n
P/E Ratio Definition: Price-to-Earnings Ratio Formula and Examples\n
The price-to-earnings (P/E) ratio measures a company's current share price relative to its per-share earnings.
\nmore
\n
Value Trap: What It Is and How to Avoid It\n
A value trap is an investment that looks attractively underpriced but may be a poor investment.
\nmore
\n
Value Investing Definition, How It Works, Strategies, Risks\n
Value investors like Warren Buffett select undervalued stocks trading at less than their intrinsic book value that have long-term potential.
\nmore
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\n\n\n\n\n\n\n\n\n\n", + "page_last_modified": "" + }, + { + "page_name": "Value or Growth Stocks: Which Is Better?", + "page_url": "https://www.investopedia.com/articles/professionals/072415/value-or-growth-stocks-which-best.asp", + "page_snippet": "Learn about the age-old debate about value versus growth stocks, and how determining which kind is better depends on a number of factors.Growth stocks are those of companies that are considered to have the potential to outperform the overall market over time because of their future potential. Value stocks are classified as companies that are currently trading below what they are really worth and will thus provide a superior return. Value stocks are classified as companies that are currently trading below what they are really worth and will thus provide a superior return. Which category is better? The comparative historical performance of these two sub-sectors yields some surprising results. Value stocks are usually larger, more well-established companies that trade below the price that analysts feel the stock is worth, depending upon the financial ratio or benchmark used as a comparison. For example, the book value of a company\u2019s stock may be $25 a share based on the number of shares outstanding divided by the company\u2019s capitalization. For example, the book value of a company\u2019s stock may be $25 a share based on the number of shares outstanding divided by the company\u2019s capitalization. Therefore, if it trades for $20 a share at the moment, then many analysts would consider this to be a good value play.", + "page_result": "\n\n\n\n\n\n\n\n\n\n\nValue or Growth Stocks: Which Is Better?\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n\n\n\n\n\n
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Table of Contents\n
\n
Table of Contents\n\n\n
\n
  • An Overview
    • \n
  • Value Stocks
    • \n
  • Growth Stocks
    • \n
  • Key Differences
    • \n
  • Examples
    • \n
  • FAQs
    • \n
  • The Bottom Line
\n
  • Stocks
    • \n
  • Growth Stocks
\n

Value or Growth Stocks: Which Is Better?

\n

\n
\n
\nBy\n
Mark P. Cussen\n
\n
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\n\n\n
\nFull Bio\n
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\nMark Cussen, CMFC, has 13+ years of experience as a writer and provides financial education to military service members and the public. Mark is an expert in investing, economics, and market news.\n
\n
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\nLearn about our \neditorial policies\n
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\n
Updated July 27, 2023
\n
\n\n\nReviewed by\n
Marguerita Cheng\n
\n
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\n\n\nReviewed by\nMarguerita Cheng\n
\nFull Bio\n
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\nMarguerita is a Certified Financial Planner (CFP), Chartered Retirement Planning Counselor (CRPC), Retirement Income Certified Professional (RICP), and a Chartered Socially Responsible Investing Counselor (CSRIC). She has been working in the financial planning industry for over 20 years and spends her days helping her clients gain clarity, confidence, and control over their financial lives.\n
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\n\n\nFact checked by\n
Ryan Eichler\n
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\n\n\nFact checked by\nRyan Eichler\n
\nFull Bio\n
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\nRyan Eichler holds a B.S.B.A with a concentration in Finance from Boston University. He has held positions in, and has deep experience with, expense auditing, personal finance, real estate, as well as fact checking & editing.\n
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\n

Value vs. Growth Stocks: An Overview

\n


Growth stocks are those of companies that are considered to have the potential to outperform the overall market\u00a0over time because of their future potential. Value stocks are classified as companies that are currently trading below what they are really worth and will thus provide a superior return. Which category is better? The comparative historical performance of these two sub-sectors yields some surprising results.\n

\n
\n

Key Takeaways

\n
  • Growth stocks are expected to outperform the overall market\u00a0over time because of their future potential.
  • Value stocks are thought to trade below what they are really worth.
  • The question of whether a growth or value stock strategy is better must be evaluated in the context of the investor's time horizon and risk.
\n

Value Stocks

\n

Value stocks are usually larger, more well-established companies that trade below the price that analysts feel the stock is worth, depending upon the financial ratio or benchmark used as a comparison. For example, the book value of a company\u2019s stock may be $25 a share based on the number of shares outstanding divided by the company\u2019s capitalization. Therefore, if it trades for $20 a share at the moment, then many analysts would consider this to be a good value play.\n

\n
\n

Stocks can become undervalued for many reasons. In some cases, public perception will push the price down, such as if a major figure in the company is caught in a personal scandal or the company does something unethical. But if the company\u2019s financials are still relatively solid, then value-seekers may see this as an ideal entry point, because they figure that the public will soon forget about whatever happened and the price will rise to where it should be.\n

\n
\n

Value stocks typically trade at a discount to either the price to earnings (P/E), book value, or cash flow ratios. Of course, neither outlook is always correct, which means some stocks can be classified as a blend of these two categories. As such, they are considered to be undervalued but also have some potential above and beyond this. Morningstar classifies all of the equities and equity funds that it ranks into either a growth, value, or blended category.
\n

\n
\n

Growth Stocks

\n

Analysts consider growth stocks to have the potential to outperform either the overall markets or a specific subsegment of them for a period of time. These stocks can be found in small-, mid-, and large-cap sectors and can only retain this status until analysts feel that they have achieved their potential.\n

\n
\n

Growth companies are considered to have a good chance for considerable expansion over the next few years, either because they have a product or line of products that are expected to sell well or because they appear to be run better than many of their competitors and are thus predicted to gain an edge on them in their market.
\n

\n
\n

\n

Make sure you choose the right investment strategy and stocks that align with your objectives and investment goals.

\n

Value vs. Growth Stocks: Key Differences

\n

The table below highlights some of the key differences that exist between value and growth stocks.\n

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Characteristics of Value and Growth Stocks: Key Differences
Value\u00a0StocksGrowth Stocks
PriceUndervalued, priced lower than the broader marketOvervalued, priced higher than the broader market
Earnings\u00a0Low P/E valuesHigh earnings growth
Risk Relatively stable with low volatilityHigh risk with more volatility
DividendsHigh dividend yieldsLow or no dividend yields
\n
\n
\n

Value vs. Growth: Performance

\n

When it comes to comparing the historical performances of the two respective sub-sectors of stocks, any results that can be seen must be evaluated in terms of time horizon and the amount of volatility and, thus, any risk that was endured to achieve them.\n

\n
\n

Value stocks are at least theoretically considered to have a lower level of risk and volatility associated with them because they are usually found among larger, more established companies. And even if they don\u2019t return to the target price that analysts or investors predict, they may still offer some capital growth. One other thing to keep in mind is that these stocks also often pay dividends as well.\n

\n
\n

Growth stocks, meanwhile, usually refrain from paying out dividends. Instead, they reinvest retained earnings back into the company to expand. The probability of loss for investors with growth stocks can also be greater, particularly if the company can't keep up with growth expectations.\n

\n
\n

For example, a company with a highly touted new product may indeed see its stock price plummet if the product is a dud or if it has some design flaws that keep it from working properly. Growth stocks, in general, possess the highest potential reward, as well as risk, for investors.\n

\n
\n

Studies

\n

Although the passage above suggests that growth stocks would post the best numbers over longer periods, the opposite has actually been true.\n

\n
\n

Many studies point to value investing having outperformed the growth style over long-term periods. But looking at more recent data, value did outperform for the first 10 years of the 2000s, but growth outperformed over the last 10 years. Take note that dividends likely play a key role in helping value outperform over longer periods of time.\n

\n
\n

Going back to 1926, value had numerous periods of outperformance relative to growth. Again, despite the long-term outperformance, growth has reigned supreme over the last decade. With that, the S&P 500 is made up of roughly 40% of technology stocks.\n

\n
\n

\n

Consult a financial professional if you're unsure about what stocks may work well for you and your goals.

\n

Examples of Value and Growth Stocks

\n

Value

\n

Value stocks tend to fall in several key industries that are exposed to areas of the market that are sensitive to economic swings. Keep in mind that these are things that people generally tend to need even when times get tough. They include consumer staples, energy, financials, industrials, and materials. The following are some examples of value stocks that fall in these industries:\n

\n
\n
    \n
  • Berkshire Hathaway (BRK.A/BRK.B)
    • \n
  • Deere & Company (DE)
    • \n
  • Cigna Group (CI)
    • \n
  • Proctor & Gamble (PG)
    • \n
  • Taiwan Semiconductor (TSM)
    • \n
  • JPMorgan Chase (JPM)
    • \n
\n
\n

Growth

\n

As noted above, growth stocks are those of companies that are expected to grow at a more rapid pace than the overall market. As such, they tend to outperform the market. Here are some examples of growth stocks:\n

\n
\n\n
\n

What Percent of the S&P 500 Is Growth vs. Value?

\n


The S&P 500 is not broken down into growth and value stocks. However, the two sectors that are often considered growth are technology and consumer discretionary, which make up 40% of the index. Meanwhile, value sectors\u2014financials, industrials, energy, and consumer staples\u2014make up roughly 29% of the index.

\n
\n
\n

What Is an Example of a Value Stock vs. Growth Stock?

\n


An example of a value stock would be a bank, such as JPMorgan Chase (JPM). While key growth is often found in the technology space, such as Google (GOOG).\u00a0


\n
\n
\n

Are Growth or Value Funds Better for the Long-Term?

\n

Value has outperformed growth stocks over the longer-term, however, growth has been outperforming for the last 10 years.

\n
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\n

The Bottom Line

\n

The decision to invest in growth vs. value stocks is ultimately left to an individual investor\u2019s preference, as well as their personal risk tolerance, investment goals, and time horizon. It should be noted that over shorter periods, the performance of either growth or value will also depend in large part upon the point in the cycle that the market happens to be in.\n

\n
\n

For example, value stocks tend to outperform during bear markets and economic recessions, while growth stocks tend to excel during bull markets or periods of economic expansion. This factor should, therefore, be taken into account by shorter-term investors or those seeking to time the markets.\n

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Article Sources
\n
\n
\n
\n
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our\neditorial policy.
\n
    \n

  1. Morningstar. "Fact Sheet: The New Morningstar Style Box\u2122 Methodology."

    2. \n

  2. Touchstone Investments. "Growth vs. Value Equities Insights."

    3. \n

  3. Nasdaq. "Value vs Growth: A Brief Historical View."

    4. \n

  4. S&P Global. \u201cS&P 500.\u201d

    5. \n
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Related Terms
\n
Growth Stock: What It Is, Examples, vs. Value Stock\n
A growth stock is a publicly traded share in a company expected to grow at a rate higher than the market average.
\nmore
\n
Investment Style: Meaning, Factors, Different Styles\n
Investment style refers to the way that a portfolio manager or investor orients their investments, e.g. towards growth or value, etc.
\nmore
\n
Cyclical Stock: What It Is, Examples, Risk and Return Potential\n
Cyclical stocks are stocks with prices that are affected by macroeconomic or systematic changes in the overall economy. They rise and fall with the economy.
\nmore
\n
Value Stock: What It Is, Examples, Pros and Cons\n
A value stock is a stock that tends to trade at a lower price relative to its fundamentals, making it appealing to value investors.
\nmore
\n
Growth Investing: Overview of the Investing Strategy\n
Growth investing is a stock-buying strategy that aims to profit from firms that grow at above-average rates compared to their industry or the market.
\nmore
\n
Common Stock: What It Is, Different Types, vs. Preferred Stock\n
Stock is a security that represents ownership in a corporation. Stock can be either common or preferred. This article discusses the differences between the two.
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\n\n\n\n\n\n\n\n\n\n", + "page_last_modified": "" + }, + { + "page_name": "Best Value Stocks to Buy in 2024 | The Motley Fool", + "page_url": "https://www.fool.com/investing/stock-market/types-of-stocks/value-stocks/", + "page_snippet": "Let's take a look at three excellent value stocks: Berkshire Hathaway (BRK.A -0.23%) (BRK.B -0.34%), Procter & Gamble (PG -0.49%), and Target (TGT -1.42%). Then we'll dive into some of the metrics that can help you find the best value stock investments. Berkshire Hathaway: Since CEO Warren ...Let's take a look at three excellent value stocks: Berkshire Hathaway (BRK.A -0.23%) (BRK.B -0.34%), Procter & Gamble (PG -0.49%), and Target (TGT -1.42%). Then we'll dive into some of the metrics that can help you find the best value stock investments. Berkshire Hathaway: Since CEO Warren Buffett took over in 1964, Berkshire Hathaway has grown into a conglomerate with more than 60 wholly owned businesses and a massive stock portfolio with more than four dozen different positions. Berkshire has steadily increased its book value and earnings power over time -- and it operates under the same business model that has led the stock to almost double the annualized return of the S&P 500 index for more than 55 years. Berkshire has steadily increased its book value and earnings power over time -- and it operates under the same business model that has led the stock to almost double the annualized return of the S&P 500 index for more than 55 years. Buffett and his business partner, Charlie Munger, have long kept large cash reserves to deploy when they spot opportunity as part of their value investing strategy. While they might not be quite as thrilling as their growth stock counterparts, it's important to realize that value stocks can have just as much long-term potential as growth stocks, if not more. After all, a $1,000 investment in Berkshire Hathaway at the beginning of 1965 would be worth more than $28 million today. Finding companies that trade for less than they are truly worth is a time-tested investment style that can pay off tremendously. A value stock is one that trades for a cheaper price than its financial performance and fundamentals suggest it\u2019s worth. P&G is a classic example of a recession-resistant stock since demand for its products holds steady throughout stock market cycles. The consumer staples giant continues to post impressive growth. In fiscal 2022, P&G increased organic sales by 7%, and it held or expanded its market share in 36 of 50 competitive niches.", + "page_result": "\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n Best Value Stocks to Buy in 2024 | The Motley Fool\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
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\n\nInvesting\n\n>\n\nStock Market\n\n>\n\nTypes Of Stocks\n\n>\n\nValue Stocks\n\n
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Investing in Value Stocks

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\nBy\nRobin Hartill, CFP \u2013\nUpdated\nNov 7, 2023 at 1:58PM\n
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Value investors want to buy stocks for less than they're worth. If you could buy $100 bills for $80, wouldn't you do so as often as possible?

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With the S&P 500 index down about 15% as of August 2022, the current market presents an opportunity for value investors. When the overall stock market drops, even high-quality companies with strong fundamentals see share prices fall. Plus, value stock companies tend to be well-established and less volatile compared to growth stock companies.

Here's an overview of value stocks, including some excellent beginner-friendly value stocks, and some key concepts and metrics that value investors should know.

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3 best value stocks for beginners

3 best value stocks for beginners

Value stocks are publicly traded companies trading for relatively cheap valuations relative to their earnings and long-term growth potential.

Let's take a look at three excellent value stocks: Berkshire Hathaway (BRK.A 0.92%) (BRK.B 0.34%), Procter & Gamble (PG -0.07%), and Target (TGT -0.06%). Then we'll dive into some of the metrics that can help you find the best value stock investments.

  1. Berkshire Hathaway: Since CEO Warren Buffett took over in 1964, Berkshire Hathaway has grown into a conglomerate with more than 60 wholly owned businesses and a massive stock portfolio with more than four dozen different positions. Berkshire has steadily increased its book value and earnings power over time -- and it operates under the same business model that has led the stock to almost double the annualized return of the S&P 500 index for more than 55 years.

    Buffett and his business partner, Charlie Munger, have long kept large cash reserves to deploy when they spot opportunity as part of their value investing strategy. In his annual letter to shareholders released in February 2022, Buffett wrote that Berkshire Hathaway held $144 billion in cash and cash equivalents. But Buffett apparently spotted value investing opportunities soon after. He later revealed at Berkshire\u2019s annual shareholder meeting that the company bought $40 billion worth of stocks in the three weeks after the shareholder letter went out.
  2. Procter & Gamble: Consumer products manufacturer Procter & Gamble is the company behind such brands as Gillette, Tide, Downy, Crest, Febreze, and Bounty, but there are dozens more in its product portfolio. Through the success of its many brands, Procter & Gamble has been able to steadily add to its revenue over time and has become one of the most reliable dividend stocks in the market. The company is just one of 44 stocks to reach the coveted Dividend King status, having boosted its dividend for 65 consecutive years.

    P&G is a classic example of a recession-resistant stock since demand for its products holds steady throughout stock market cycles. The consumer staples giant continues to post impressive growth. In fiscal 2022, P&G increased organic sales by 7%, and it held or expanded its market share in 36 of 50 competitive niches. Although management expects sales growth to slow in fiscal 2023, the company\u2019s size, stability, and diversity of products make it a solid play for tough times.
  3. Target: Big-box retailer Target has a cult-like following that continues to grow, fueled in part by the popularity of its in-house brands. Sales of Target-owned brands soared by 18% in 2021 to more than $30 billion. Like other retailers, the company\u2019s online sales have surged since the beginning of the pandemic. But Target\u2019s unique digital model -- where 95% of sales, including online orders, are fulfilled by stores -- gives it an edge over competitors and allows it to reduce costs and maximize speed.

    As of mid-2022, Target had a price-to-earnings ratio of around 14, making it cheap compared to rivals Walmart (WMT -0.56%) and Costco (COST -0.86%), which respectively trade for about 28 times and 42 times their earnings.

    Another perk for value investors: Target is also a Dividend King, having boosted its dividend for 50 consecutive years.
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What are value stocks?

What are value stocks?

Most stocks are classified as either value stocks or growth stocks. Generally speaking, a value stock trades for a cheaper price than its financial performance and fundamentals suggest it\u2019s worth. A growth stock is a stock in a company expected to deliver above-average returns compared to its industry peers or the overall stock market.

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What if...
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If you could buy $100 bills for $80, wouldn't you do so as often as possible?

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Some stocks have both attributes or fit in with average valuations or growth rates, so whether to call them value stocks depends on the number of pertinent characteristics they possess. Value stocks generally have the following characteristics:

  • They typically are mature businesses.
  • They have steady (but not spectacular) growth rates.
  • They report relatively stable revenues and earnings.
  • Most value stocks pay dividends, although this isn't a set-in-stone rule.

Some stocks easily fit into one category or the other. For example, package delivery giant FedEx (FDX -0.88%) is clearly a value stock that\u2019s fallen out of favor with Wall Street due to some short-term challenges. Fast-moving Tesla (TSLA 0.66%) is an obvious example of a growth stock.

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On the other hand, some stocks can fit into either category. For example, there's a case to be made either way for tech giants Apple (AAPL -0.22%) and Microsoft (MSFT -2.07%).

Regardless of the category of a stock, economic downturns present an opportunity for a value investor. The goal of value investing is to scoop up shares at a discount, and the best time to do so is when the entire stock market is on sale.

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What to look for

How to find value stocks to invest in

The point of value investing is to find companies trading at a discount to their intrinsic value, with the idea that they'll be likely to outperform the overall stock market over time. However, finding stocks that are undervalued is easier said than done.

That said, here are three of the best metrics to keep in your toolkit as you search for a bargain:

  • P/E ratio: This is the best-known stock valuation metric -- and for a good reason. The price-to-earnings, or P/E, ratio can be a very useful tool for comparing valuations of companies in the same industry. To calculate it, simply divide a company's stock price by its past 12 months of earnings.
  • PEG ratio: This is similar to the P/E ratio but adjusts to level the playing field between companies that might be growing at slightly different rates (thus, PEG, or price-to-earnings-to-growth, ratio). By dividing a company's P/E ratio by its annualized earnings growth rate, you get a more apples-to-apples comparison between different businesses.
  • Price-to-book (P/B) ratio: Think of the book value as what would theoretically be left if a company stopped operations and sold all its assets. Calculating a company's share price as a multiple of its book value can help identify undervalued opportunities, and many value investors specifically look for opportunities to buy stocks trading for less than their book value.
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Value investors

Value investors

Long-term investors can generally be classified into one of three groups:

  • Value investors try to find stocks trading for less than their intrinsic value by applying fundamental analysis.
  • Growth investors try to find stocks with the best long-term growth potential relative to their current valuations.
  • Investors who take a blended approach do a little of each.

Warren Buffett is perhaps the best-known value investor of all time. From the point when he took control of Berkshire Hathaway in 1964 to the end of 2021, the S&P 500 has generated a total return of 30,209%. Berkshire's total return during the same period has been a staggering 3,641,613% (that's not a typo).

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Although he isn't as well-known as Buffett, Benjamin Graham is often referred to as the father of modern value investing. His books, The Intelligent Investor and Securities Analysis, are must-reads for serious value investors. Graham also was Buffett's mentor.

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Related investing topics

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\nGrowth Stocks\n

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Make money by identifying growth stocks: companies poised to grow faster than the market or average business in its industry.

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\nBlue Chip Stocks\n

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These well-known, proven stocks are often household names.

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\nTypes of Stocks\n

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Stocks come in all different sizes and varieties. We break it down.

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\nStock Market Sectors\n

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The larger stock market is made up of multiple sectors you may want to invest in.

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The power of value stocks

Don't underestimate the power of value stocks

While they might not be quite as thrilling as their growth stock counterparts, it's important to realize that value stocks can have just as much long-term potential as growth stocks, if not more. After all, a $1,000 investment in Berkshire Hathaway at the beginning of 1965 would be worth more than $28 million today. Finding companies that trade for less than they are truly worth is a time-tested investment style that can pay off tremendously.

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Value Stock FAQs

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What is a value stock?

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A value stock is one that trades for a cheaper price than its financial performance and fundamentals suggest it\u2019s worth.

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What are value stocks vs growth stocks?

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Value investing and growth investing are two different investing styles. Usually, value stocks present an opportunity to buy shares below their actual value, and growth stocks exhibit above-average revenue and earnings growth potential. Wall Street likes to neatly categorize stocks as either growth or value stocks. The truth is a bit more complicated since some stocks have elements of both value and growth. Nevertheless, there are important differences between growth and value stocks, and many investors prefer one style of investing over the other.

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What are value stock ETFs?

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An exchange-traded fund (ETF) that invests in value stocks uses specific criteria to find companies whose intrinsic values substantially exceed the market values implied by their stock prices. By investing in a wide range of undervalued companies, value stock ETFs confer instant portfolio diversification. Buying shares in a value stock ETF can be a safe and easy way to invest in companies in cyclical industries.

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How do I start value investing?

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Value investing requires a lot of research. You'll have to do your homework by going through many out-of-favor stocks to measure a company's intrinsic value and comparing that to its current stock price. Often, you'll have to look at dozens of companies before you find a single one that's a true value stock.

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\nRobin Hartill, CFP\u00ae has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, Costco Wholesale, FedEx, Microsoft, Target, Tesla, and Walmart. The Motley Fool has a disclosure policy.\n
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\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n", + "page_last_modified": "" + }, + { + "page_name": "10 Best Value Stocks to Buy for the Long Term | Morningstar", + "page_url": "https://www.morningstar.com/stocks/10-best-value-stocks-buy-long-term", + "page_snippet": "The stocks of these high-quality companies look cheap today.The stocks of these high-quality companies look cheap today. ... Growth stocks had a sizable performance advantage over value stocks in 2023: The Morningstar US Growth Index outperformed the Morningstar US Value Index by more than 26 percentage points for the year. Are growth stocks overpriced today? Demand for anything AI-related continued to push growth stocks further into overvalued territory so far this year, says Morningstar chief US market strategist Dave Sekera. Meanwhile, value stocks have lagged. \u201cWe see much better long-term investment opportunities within the value category and think investors should consider paring those growth stocks that have become overvalued and overextended,\u201d he adds. Growth stocks continue to outperform value in 2024 by over 3 percentage points for the year to date. Are growth stocks overpriced today? Demand for anything AI-related continued to push growth stocks further into overvalued territory so far this year, says Morningstar chief US market strategist Dave Sekera. With a big runway for growth but a lofty valuation, here\u2019s what we think of MongoDB\u2019s stock. ... These seven undervalued real estate stocks pay dividends and trade at attractive prices. ... These 5 undervalued energy stocks look attractive today.", + "page_result": "\n\n \n 10 Best Value Stocks to Buy for the Long Term | Morningstar\n \n \n
Skip to Content
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Stocks

\n\t\t\t\t\t\t\t10 Best Value Stocks to Buy for the Long Term\n\t\t\t\t\t\t

The stocks of these high-quality companies look cheap today.

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Growth stocks had a sizable performance advantage over value stocks in 2023: The Morningstar US Growth Index outperformed the Morningstar US Value Index by more than 26 percentage points for the year. Growth stocks continue to outperform value in 2024 by over 3 percentage points for the year to date.

Are growth stocks overpriced today? Demand for anything AI-related continued to push growth stocks further into overvalued territory so far this year, says Morningstar chief US market strategist Dave Sekera. Meanwhile, value stocks have lagged. \u201cWe see much better long-term investment opportunities within the value category and think investors should consider paring those growth stocks that have become overvalued and overextended,\u201d he adds. \u201cNow may be a good time to begin allocating to those contrarian plays that have underperformed, are unloved, and, most importantly, are undervalued.\u201d

We\u2019ve put together a list of the best value stocks to buy for the long term, using these criteria:

  • The stocks land in the value portion of the Morningstar Style Box.
  • The stocks are from companies included on Morningstar\u2019s list of the Best Companies to Own for 2024. Companies on this list have wide Morningstar Economic Moat Ratings and predictable cash flows, and they are run by management teams that make smart capital-allocation decisions.
  • The stocks are cheap, which means they\u2019re trading below Morningstar\u2019s fair value estimates.

10 Best Value Stocks to Buy for the Long Term

The 10 cheapest value stocks from Morningstar\u2019s Best Companies to Own list as of March 7, 2024, were:

  1. Imperial Brands IMBBY
  2. British American Tobacco BTI
  3. Pfizer PFE
  4. Polaris PII
  5. Campbell Soup CPB
  6. Comcast CMCSA
  7. Gilead Sciences GILD
  8. Medtronic MDT
  9. RTX RTX
  10. U.S. Bancorp USB

Here\u2019s a little bit about each of these value stocks for the long term. Data is as of March 7, 2024.

Imperial Brands

  • Price/Fair Value: 0.61
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Style Box: Large Value
  • Morningstar Capital Allocation Rating: Standard
  • Industry: Tobacco

Imperial Brands stock is trading 39% below our fair value estimate and tops our list of the best value stocks to buy for the long term. Morningstar director Philip Gorham refers to this Big Tobacco name as a \u201cfast follower\u201d rather than a leader in most markets. As a result, the company is likely to be more exposed to cigarettes in the future relative to its peers, who are investing for growth and moving away from the secular decline in cigarettes. Gorham nevertheless says Imperial Brands should remain a highly profitable and cash-generative business. We think Imperial Brands stock is worth $36 per share.

British American Tobacco

  • Price/Fair Value: 0.63
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Style Box: Large Value
  • Morningstar Capital Allocation Rating: Standard
  • Industry: Tobacco

The second Big Tobacco name on our list of the best value stocks to buy for the long term, British American Tobacco stock is trading 37% below our fair value estimate of $47 per share. While cigarettes will likely remain the driving force of profits in the industry for the next decade, British American Tobacco has been the most aggressive of the Big Tobacco makers with its push into new-generation products, with exposure to several emerging categories, including vaping, heated tobacco, and oral products, says Morningstar\u2019s Gorham.

Pfizer

  • Price/Fair Value: 0.64
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Style Box: Large Value
  • Morningstar Capital Allocation Rating: Standard
  • Industry: Drug Manufacturers\u2014General

Pfizer, which is trading at a 36% discount to our fair value estimate, is the first stock on our list from a sector that some may not associate with value: healthcare. But like many Big Pharma stocks, Pfizer lands in the value portion of the style box. We don\u2019t think the market fully appreciates the pharmaceutical giant\u2019s ability to offset major patent losses over the next five years, argues Morningstar director Damien Conover. Given the firm\u2019s recent oncology research and development presentation that showed a strong lineup of new potential blockbusters, we also think the market appears to underappreciate the company\u2019s pipeline, he adds. We think Pfizer stock is worth $42 per share.

Polaris

  • Price/Fair Value: 0.64
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Style Box: Small Value
  • Morningstar Capital Allocation Rating: Exemplary
  • Industry: Recreational Vehicles

New to our list of best value stocks to buy this month, Polaris stock trades 36% below our fair value estimate of $145. Polaris is one of the longest-operating brands in powersports. Around 70 years ago, the company started to build its reputation and brand by producing snowmobiles. In the decades since, the company has expanded into all-terrain vehicles, motorcycles, boats, and electric vehicles, building a recreational and utility vehicle powerhouse. We think Polaris stands to capitalize on its research and development, solid quality, operational excellence, and acquisition strategy, says Morningstar senior analyst Jaime Katz. However, peers are innovating more quickly than in the past, which could jeopardize the firm\u2019s ability to take price and share consistently, particularly in periods of inflated recalls or aggressive industry discounting.

Campbell Soup

  • Price/Fair Value: 0.69
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Style Box: Mid-Value
  • Morningstar Capital Allocation Rating: Standard
  • Industry: Packaged Foods

Campbell Soup stock is trading 31% below our $61 fair value estimate. The company earns a wide economic moat rating thanks to its cost advantages and brands, which include its namesake brand, Pace, Prego, and Swanson, among others. We think Campbell\u2019s strategy is sound, observes Morningstar director Erin Lash. By leveraging technology, data insights, and artificial intelligence, the company brings products that consumers value to the shelf in a timely fashion. \u201cWe believe Campbell remains committed to extracting inefficiencies from its supply chain and distribution network, optimizing direct-to-store routes, and investing in automation,\u201d she adds. Over the next decade, we\u2019re forecasting low-single-digit annual sales growth and high-single-digit adjusted average earnings per share growth.

Comcast

  • Price/Fair Value: 0.70
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Style Box: Large Value
  • Morningstar Capital Allocation Rating: Standard
  • Industry: Telecom Services

Comcast stock is trading 30% below our fair value estimate. Growth in Comcast\u2019s cable business has slowed, and we expect it to continue to slow as more customers access fiber and wireless network alternatives. We nevertheless think Comcast will be able to limit broadband share losses in the coming years while enjoying solid pricing power, says Morningstar director Mike Hodel. Overall, we expect Comcast will deliver only modest growth but with strong cash flow for the foreseeable future. We assign the stock a fair value estimate of $60 per share.

Gilead Sciences

  • Price/Fair Value: 0.76
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Style Box: Large Value
  • Morningstar Capital Allocation Rating: Standard
  • Industry: Drug Manufacturers\u2014General

Another cheap healthcare stock landing in the value portion of the style box, Gilead stock is trading 24% below our $97 fair value estimate. We think investors underappreciate the stability of the firm\u2019s HIV foundation and the growth potential of the firm\u2019s oncology portfolio and pipeline, says Morningstar strategist Karen Andersen. Its portfolio and pipeline support a wide moat, but Gilead needs HCV market stabilization, strong continued innovation in HIV, solid pipeline data, and smart future acquisitions to return to growth. We think Gilead should generate low-single-digit growth annually over the next few years, she adds.

Medtronic

  • Price/Fair Value: 0.76
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Style Box: Large Value
  • Morningstar Capital Allocation Rating: Standard
  • Industry: Medical Devices

Medtronic stock trades 24% below our $112 fair value estimate. The largest pure-play medical-device maker is a key partner for its hospital customers, thanks to its diversified product portfolio aimed at a wide range of chronic diseases, explains Morningstar senior analyst Debbie Wang. Medtronic\u2019s plans to spin off its patient monitoring and respiratory innovations businesses will only help the company pivot more toward faster-growing markets, she adds. We have always appreciated Medtronic\u2019s diverse portfolio, where certain waning product lines would be offset by growth in other categories.

RTX

  • Price/Fair Value: 0.81
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Style Box: Large Value
  • Morningstar Capital Allocation Rating: Exemplary
  • Industry: Aerospace and Defense

RTX stock trades 19% below Morningstar\u2019s fair value estimate. The diversified aerospace and defense company comprises three segments: Collins Aerospace, Pratt & Whitney, and Raytheon. \u201cThe combined entity unites powerhouses in the commercial aerospace and defense contracting industries and is unique in its relatively even split between commercial and defense revenue,\u201d says Morningstar analyst Nicolas Owens. \u201cMost other firms in the industry are heavily skewed one way or the other.\u201d Long term, we expect RTX to benefit from secular aerospace growth and increasing defense budgets, he adds. We assign RTX stock a fair value estimate of $112 per share.

U.S. Bancorp

  • Price/Fair Value: 0.83
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Style Box: Large Value
  • Morningstar Capital Allocation Rating: Exemplary
  • Industry: Banks\u2014Regional

The final name on our list of the best value stocks to buy for the long term, U.S. Bancorp stock trades 17% below our fair value estimate of $52 per share. U.S. Bancorp is one of the most profitable regional banks we cover, says Morningstar director Eric Compton. The bank has a national scale and a unique mix of fee-generating businesses, including payments, corporate trust, wealth management, and mortgage banking, all while avoiding investment banking. We think its management team has done an exemplary job of allocating capital. Moreover, we don\u2019t think the bank will need to raise capital to meet any new regulatory changes, Compton adds.

What Are Value Stocks?

Simply put, value stocks are stocks that trade below what they\u2019re worth. \u201cWorth\u201d is usually measured by popular valuation yardsticks, such as price/earnings or price/book ratios. Value stocks are often (but not always) found in more established industries with less robust growth prospects. Value stocks also tend to come from mature companies that pay out at least some of their earnings as dividends. In addition, companies that may have solid long-term growth prospects but whose stocks have fallen out of favor for some short-term reason (bad business news, potential regulatory risk, and so on) can become value stocks, too.

What Are the Morningstar Style Box and Fair Value Estimate?

The Morningstar Style Box is a nine-square grid that provides a graphical representation of the investment style of stocks, bonds, or funds. Based on a series of inputs\u2014including a company\u2019s historical and long-term projected growth and its historical and forward-looking price multiples\u2014a stock is classified as either a value stock, a growth stock, or a core stock. A stock is also classified as either small-cap, mid-cap, or large-cap based on its market capitalization.

The fair value estimate, meanwhile, represents what Morningstar analysts think a particular stock is worth. Fair value estimates are rooted in the fundamentals and based on how much cash we think a company can generate in the future, not on fleeting metrics such as recent earnings or current stock price momentum.

How to Find More Cheap Value Stocks to Buy

Of course, there are many other criteria investors can use to find value stocks to buy for the long term. Here are some tools that investors can use to find more value-stock ideas to research further:

  • Investors can review Morningstar\u2019s lists of large-cap value stocks, mid-cap value stocks, and small-cap value stocks. The lists aren\u2019t restricted by quality or valuation; rather, they\u2019re complete lists of the value stocks in Morningstar\u2019s database.
  • Investors can use the Morningstar Investor screener to more easily compare value stocks to each other. One way would be to screen by Stock Style under the Criteria drop-down menu, choosing large value, mid-value, small value, or some combination thereof. Then once you have your results, click on Data & Columns to select Financials data points in the Stocks area. These might be valuation metrics like price/earnings ratios or profitability measures like return on assets, among others. Then click Update. Once back to the list of stocks, click on the data point that matters most to you to rank the list on that particular data point.
  • Investors who\u2019d rather invest in value stocks through a managed product like an exchange-traded fund or a mutual fund can find ideas to research further in The Best Value Funds.

The author or authors do not own shares in any securities mentioned in this article.\n\n\t\t\t\t\t\tFind out about Morningstar\u2019s editorial policies.\n\t\t\t\t\t

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