When you consider what makes a value stock a value
stock, it would seem to stand to reason that value stocks
would be leading all stocks during this global pandemic.
After all, when the bottom dropped out of the market,
there were some innocent bystanders who got swept
up in the downward spiral.
While the Dow and S&P have been down, the tech-heavy
Nasdaq has seen year-to-date gains, as of mid-May.
Many hard-charging tech stocks seemed to be tailormade for the backdrop of a pandemic. Many of the so-called FAANG stocks have been in that category. Companies that offer entertainment, cloud services, computers, workplace collaboration software, videoconferencing services and online retailing have all
benefited from the coronavirus pandemic. Most of
these companies also occupy the growth sector.
Companies that have facilitated online payment
processing, that also fall into the growth segment,
have also seen increases in business.
In health care, the health tech companies have gained
notice also with telemedicine-facilitators getting a big
boost from the pandemic and the digital health sector
in general has been one growth sector benefitting from
a doctor-office-wary populace.
With people staying at home and playing online games,
even companies that help facilitate gaming and video
performance have seen their stocks thrive. Retailers,
who previously invested in tech to get a competitive
edge, have benefited during the stay-at-home period.
Growth Has Only Extended its Lead
Many of the growth stocks not only have proven to be
pandemic-proof but also pandemic-enabled. During
good times and bad, their business models have
produced revenues while others have been stymied.
As a matter of fact, the coronavirus pandemic has
helped lengthen the track record for growth stocks
which outpaced value stocks during 2019. With some
sectors enjoying good sales during the shutdown and
others badly hurt, many of the stellar performers fall
on the growth side of the equation.
Tech was well-placed for a pandemic where people
had to stay at home and rely on technology for work
Through mid-May, growth stocks in the U.S. had a 22.5
percent advantage over their value counterparts. This
is comparing the Russell 1000 growth and value indexes.
The value sector has been in negative territory since
Growth has emerged back into positive territory in lateMay while value stocks have languished at a level that
is approximately 20 percent lower than the beginning
of the year.
Using the Russell indexes as a further measuring stick,
value has lagged behind growth for much of the past
decade. Since the Great Recession, and since the beginning of 2010, the Russell 1000 growth index is up 264 percent through May 20, 2020, while its value cousin is only up 91 percent in the same period.
Are there any value stocks that still offer any redeeming
value? Some leading investment newsletters have
mentioned a few exceptions among value stocks that
have lower PE ratios and better price to book ratios that
the S&P 500 average. Also, some dividend-paying value
stocks have remained attractive.
In a world that must now accept a “new normal,” many
growth stocks should continue to offer a premium
because of their products or services.