Style Analysis: Value Stocks Looking Attractive

September 05, 2018 |Author: Edward Kerschner, CFA | Categories: Chart of the Week, Equity Income and Dividends

  • Value stocks are attractively valued. Growth stocks are significantly above their historically average forward price/earnings (P/E) premium relative to value stocks. The current forward P/E premium for growth stocks versus value stocks is 43%, which is higher than the long-term average premium of 33%, and that includes the 2000 dot.com bubble. The average forward P/E premium post the dot.com bubble has been 24%.
  • Best opportunity in 12 years. In part reflecting the narrow leadership, with the so-called FANG stocks (Facebook, Amazon, Netflix and Google), contributing a substantial part of price gains, the forward P/E premium for growth relative to value is at the highest level in 12 years. Should value stocks take the lead, dividend income strategies may come back into favor.
 

Forward price to earnings (forward P/E) is the ratio of price-to-earnings (P/E) using forecasted earnings for the P/E calculation. 

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