“Now is an opportune time for investors to shift their focus to value” when looking at U.S. stocks, according to Brian Belski, chief investment strategist at BMO Capital Markets.
As the CHART OF THE DAY shows, Belski’s recommendation reflects a transition that started last year. Shares with low prices relative to sales, earnings and asset values are faring better than those of faster-growing companies, according to a comparison of Standard & Poor’s 500 value and growth indexes.
The ratio between these indexes, which the New York-based analyst cited in a Feb. 8 report, has climbed 7.6 percent from last year’s low. Even so, it’s below the average end-of-month reading for the past 20 years, as displayed in the chart.
Belski isn’t alone among market strategists in preferring value to growth. Wells Fargo & Co.’s Gina Martin Adams, also based in New York, wrote yesterday in a report that she saw last year’s shift toward value stocks as a turning point.
“We suspect value will continue to have the edge over growth in the months ahead,” she wrote. Shrinking productivity gains point to that conclusion, the report said, as they weigh more heavily on growth companies. Fourth-quarter productivity rose from a year earlier by 0.6 percent, trailing the third quarter’s 1.8 percent gain, Labor Department data showed.
Belski wrote that a brighter earnings outlook will help value stocks extend their gains. Analysts anticipate 7 percent profit growth for companies in the S&P 500 Value Index, beating a 2.7 percent increase for the growth index, according to data cited in the report.
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