Growth vs. Value InvestingJun 01, 2021 09:56AM ● By Amy Fritchman
If you have been watching the financial news lately, you have probably heard this year that value stocks are outperforming growth stocks in 2021. A lot of you may be wondering what the difference between the two strategies is and why does it matter. Let me start off by first explaining what a growth and value stock are.
When someone mentions value investing to you, think of investors like Warren Buffet. He is the most famous value investor. When you are looking for value stocks, you are looking for stocks that are trading at cheap valuations compared to the market and most likely are paying a dividend. The metrics that value investors look at for evaluating if a stock is cheap are financial ratios like price/earnings, book value, price to sales, and dividend yield. If a company is trading with a low price/earning ratio that is less then the market, that company could be potentially undervalued compared to the market or industry it is in. Some examples of value stock would be Coco Cola and Southern Company.
Growth stocks by comparison are the new up and coming technology stock that everyone get excited about. During the past year, most of you have probably been on a zoom call at work or maybe with a loved one. Zoom is an example of a growth stock. So, what do growth style investors look for when evaluating a company? Most growth companies will have extremely high revenue growth, little to no earning, high price to earning ratios, and are more volatile than value stocks.
Which is better?
Both growth and value offer opportunities to profit from, but the best investment style really depends on your personal financial situation and risk tolerance. If you are in or near retirement and looking for income and your stock portfolio not to fluctuate much, then you are most likely looking for value stocks or mutual funds. If you are young, have a long-time frame, and are looking for higher returns, growth investing is more likely a suitable strategy for you. If you are not sure which strategy is best for you, the guidance of a financial professional can help you determine which investment strategy is best for you.
Louis DeVicaris CFP
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