Growth or Value Stocks?  Why the Answer Today May Be ‘Both’

July 24, 2020

STOCK INVESTORS POSITIONING THEIR PORTFOLIOS for economic recovery have given fresh urgency to an age-old debate: growth or value?

Growth investors seek stocks or mutual funds of companies offering the potential for strong earnings growth. Though there are no guarantees, growth investors can be willing to pay a higher-than-average price for these stocks in hopes that the prices will rise still higher, despite their greater tendency to be affected by market swings. 

Value investors, on the other hand, look for companies whose prices may have fallen, but that still have strong fundamentals. They’re looking to capitalize when and if those companies regain their lost value. These stocks, generally of well established companies with proven histories of financial performance, also often can offer dividends.

But in today’s market, the distinctions between growth and value are blurring, says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. Choosing one at the expense of the other could be a mistake. “As people and investors, we like to put things in boxes. But today’s marketplace represents a confluence of growth and value.”

As technology redefines entire industries and sectors once considered value-oriented adjust to new realities, potential opportunities for growth exist more broadly, Hyzy says. As an example, he points to the industrial sector, once viewed as too stodgy for growth investors. “Industrials are now seen as a growth area, thanks to innovation and disruptive technologies.” Similarly, the consumer sector, which used to be known primarily for cyclical growth, currently has more resilience. And the major tech companies, no longer the new kids on the block, now could be more likely to offer dividends.

“When lines get blurry, you need to have a diversified mixture,” Hyzy says. What’s more, both growth and value have their place in an economy seeking to recover from the ongoing effects of the coronavirus. Growth stocks tend to do well when interest rates are low and corporate earnings are rising. Value stocks tend to perform well early in an economic recovery, though the benefits may diminish in a prolonged bull market.

The most important thing, Hyzy says, is to consider all of your goals and timelines and build your strategies around them. Hyzy joins Candace Browning, head of BofA Global Research, for a deeper dive on investing in today’s markets in “Midyear 2020: A Time of Challenge—and Opportunity.” Watch it for further insights.