Growth vs. Value: What is Stock "Style" and Why Does it Matter?
Depending on how you count, there are around 4,000 publicly traded companies in the US today. And, as you might expect, these stocks can be very different from one another. To start with the most obvious – some companies are small ($10-100 Million), while others are staggeringly large ($3 Trillion +). However, in addition to a stock’s size, the next thing investors look at is the stock’s “style” – in other words, is it Growth or Value?
Growth stocks are shares of companies that are expected to, well, grow! That is, there are investor expectations that these companies should grow faster than the market, either as a result of innovation, technology, or strong future prospects. These companies reinvest their earnings to expand, meaning they typically don’t pay dividends but offer potential for higher price appreciation. Some examples of Growth stocks include Amazon, NVIDIA, & Netflix.
Value stocks, on the other hand, are shares of companies that the market may have undervalued. They often trade at lower price-to-earnings (P/E) ratios and tend to offer higher dividends, providing a more stable source of income for investors. Target, Deere, and Procter and Gamble are all examples of Value stocks.
Recently, growth stocks – like Nvidia – have been the standout performers. Driven by technological advancements and trends like artificial intelligence, these companies have seen explosive growth. Nvidia, in particular, has skyrocketed as demand for AI technology has surged. For investors focused on growth, these stocks offer high potential returns, though they tend to be much more volatile and sensitive to market changes (for example, NVDIA fell nearly 25% last month despite being up more than 100% on the year).
Value stocks, however, have a different appeal. Historically, value stocks have outperformed growth over longer periods of time (especially during market downturns or in times of economic recovery). Companies in sectors like finance, healthcare, and utilities often fall into this category. These stocks tend to be less volatile, providing a more stable return and often paying dividends, which can be a critical component of long-term wealth-building. Over decades, value investing has proven to be a steady, reliable strategy, delivering consistent returns for patient investors.
While Growth stocks have clearly overperformed in recent years, a successful portfolio contains exposure to both stock styles. Capturing short term growth is important, but not at the expense of your long-term plans. This is why we are dedicated to finding the proper balance between Growth and Value stocks in your portfolio at every point along the market cycle. So, whether Growth stocks continue to overperform, or if the pendulum swings all the way back to Value stocks for the next 10+ years, you are put in position to succeed.
Investing involves risk. No investment strategy can guarantee positive results. Loss, including loss of principal, may occur. Material discussed is meant to provide general information and it is not to be construed as specific investment, tax or legal advice. Keep in mind that current and historical facts may not be indicative of future results. Diversification is an investment strategy that can help manage risk within a portfolio, but it does not guarantee profits or protect against loss in declining markets.
This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. (C) Twenty Over Ten
