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Value Stocks Crushing Growth and the Trend May Continue

The Russell 1000 Value index has slumped 12% so far this year, while Russell 1000 Growth has dropped 25%.
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Value stocks have outperformed growth this year, as the surge in interest rates has weighed on the latter category.

Higher rates hurt growth stocks because earnings for them might not come until far in the future. And that makes those earnings less valuable now, especially when bonds offer increasing income.

On the value side, energy stocks have been buoyed by the jump in oil prices sparked by the war in Ukraine. And consumer staples have benefited from fears of recession.

The Russell 1000 Value index has slumped 12% so far this year, easily outperforming the Russell 1000 Growth index, which has dropped 25%.

Even after that superior performance, value looks cheap compared to growth. The Russell 1000 Value had a forward price/earnings ratio of 14.3 at the end of May, compared to 22.5 for the Russell 1000 Growth, according to BofA Global Research, as cited by The Wall Street Journal.

Value Stocks Will Have a ‘Stupendous Decade’

Many experts think value will continue to beat growth. “From current levels, I think we’re going to have a stupendous decade and most particularly a stupendous three to five years,” Rob Arnott, founder of Research Affiliates, told The Journal.

Meanwhile, Morningstar identified three value stocks that can provide stability amid a tumultuous stock market. The CBOE Volatility Index has soared 63% so far this year

“Investors today are concerned about rising interest rates, hot inflation, and economic uncertainty,” Susan Dziubinski, director of content for Morningstar.com, wrote in a commentary.

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“During tumultuous times, some investors may be looking for stocks that are reliable, for companies that are likely to withstand economic uncertainty,” she noted.

Dziubinski chose household cleaning products company Clorox  (CLX) - Get Clorox Company (The) Report, Swiss drug company Roche  (RHHBY)  and U.K. consumer products company Unilever  (UL) - Get Unilever PLC Report.

Clorox

“The pandemic prompted consumers to scour the shelves for Clorox's fare, boosting sales,” Morningstar analyst Erin Lash wrote in a commentary.

“And even as volume growth is decelerating, we don’t think consumers are turning their backs on Clorox’s cleaning and disinfecting products, as sales remain well above where they were before the pandemic.”

Roche

“We think Roche's drug portfolio and industry-leading diagnostics conspire to create maintainable competitive advantages,” Morningstar analyst Karen Andersen wrote in a commentary.

“As the market leader in both biotech and diagnostics, this Swiss healthcare giant is in a unique position to guide global healthcare into a safer, more personalized, and more cost-effective endeavor.”

Unilever

“Trian Partners … has accumulated a 1.5% stake in Unilever and taken a seat on the board, in a move that we believe could finally be the catalyst to unlock value at Unilever,” Morningstar analyst Philip Gorham wrote in a commentary.

“It is little wonder shareholders are excited. Trian Partners has [experience] when it comes to revamping consumer products manufacturers.”

The author of this story owns shares of Clorox and Unilever.