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Philip van Doorn

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Aug. 9, 2018, 5:54 p.m. EDT

Growth or value stocks? These companies may provide the best of both

A screen identifies companies priced as value stocks but featuring fast sales growth and improving gross margins

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By Philip van Doorn, MarketWatch


Bloomberg
Homebuilder PulteGroup is among a group of companies with low price-to-book valuations also showing rapid sales growth and improved profitability.

After shares of Netflix and Facebook took a beating late last month, there has been buzz about this being the right time for investors to move at least some of their money from growth stocks to value stocks.

Consider these stories:

• The stock market just experienced the most seismic shift from growth to value since Lehman Brothers, says Nomura.

• Stock-market shift from growth to value ‘a meaningful bounce’ but not yet a ‘trend change.’

• It’s finally time to shift some money into value stocks.

Netflix /zigman2/quotes/202353025/composite NFLX +1.98%  and Facebook /zigman2/quotes/205064656/composite FB +0.69%  are two of the FAANG stocks — a group that also includes Apple /zigman2/quotes/202934861/composite AAPL +0.85% , Amazon.com /zigman2/quotes/210331248/composite AMZN +0.55%  and Google holding company Alphabet /zigman2/quotes/205453964/composite GOOG +0.03% /zigman2/quotes/202490156/composite GOOGL +0.10% . These companies together have a market value of $3.6 trillion, making up an astonishing 13% of the S&P 500 Index’s total market value. Their rapid sales growth has been a major driver for increasingly popular index funds in recent years. So arguments for moving away from growth stocks often center on the FAANGs.

The simplest way to divide stocks into growth and value camps is to divide the market in half by price-to-book-value ratios. The Russell 1000 Index /zigman2/quotes/210598144/delayed RUI +0.26%  is divided into the Russell 1000 Growth Index /zigman2/quotes/210598136/delayed RLG +0.40%  and the Russell 1000 Value Index /zigman2/quotes/210598148/delayed RLV +0.12%  using price/book as well as earnings growth forecasts and five years of sales per share.

Also see: These 10 companies have recently raised their dividends by at least 10%

There’s no question that during this bull market that began in March 2009, the growth approach has been a better performer for investors. Here are how the Russell 1000 Index, the Russell 1000 Growth Index and the Russell 1000 Value Index have performed over various periods:

2018:

Three years through Aug. 6:


FactSet

5 years:


FactSet
/zigman2/quotes/202353025/composite
US : U.S.: Nasdaq
$ 298.93
+5.81 +1.98%
Volume: 5.61M
Dec. 11, 2019 4:00p
P/E Ratio
95.41
Dividend Yield
N/A
Market Cap
$128.46 billion
Rev. per Employee
$2.22M
loading...
/zigman2/quotes/205064656/composite
US : U.S.: Nasdaq
$ 202.26
+1.39 +0.69%
Volume: 8.04M
Dec. 11, 2019 4:00p
P/E Ratio
32.31
Dividend Yield
N/A
Market Cap
$572.98 billion
Rev. per Employee
$1.57M
loading...
/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 270.77
+2.29 +0.85%
Volume: 19.72M
Dec. 11, 2019 4:00p
P/E Ratio
22.84
Dividend Yield
1.14%
Market Cap
$1192.93 billion
Rev. per Employee
$1.98M
loading...
/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 1,748.72
+9.51 +0.55%
Volume: 2.10M
Dec. 11, 2019 4:00p
P/E Ratio
77.42
Dividend Yield
N/A
Market Cap
$862.30 billion
Rev. per Employee
$359,671
loading...
/zigman2/quotes/205453964/composite
US : U.S.: Nasdaq
$ 1,345.02
+0.36 +0.03%
Volume: 850,796
Dec. 11, 2019 4:00p
P/E Ratio
28.86
Dividend Yield
N/A
Market Cap
$864.86 billion
Rev. per Employee
$1.39M
loading...
/zigman2/quotes/202490156/composite
US : U.S.: Nasdaq
$ 1,344.25
+1.36 +0.10%
Volume: 1.02M
Dec. 11, 2019 4:00p
P/E Ratio
28.85
Dividend Yield
N/A
Market Cap
$863.72 billion
Rev. per Employee
$1.39M
loading...
/zigman2/quotes/210598144/delayed
US : US Composite
1,735.49
+4.55 +0.26%
Volume: 2.45M
Dec. 11, 2019 4:30p
loading...
/zigman2/quotes/210598136/delayed
US : US Composite
1,715.28
+6.80 +0.40%
Volume: 1.11M
Dec. 11, 2019 4:30p
loading...
/zigman2/quotes/210598148/delayed
US : US Composite
1,316.43
+1.59 +0.12%
Volume: 1.98M
Dec. 11, 2019 4:30p
loading...
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