While assets such as Amazon or Alphabet have been convincing many investors for years, value stocks have to live on the sidelines. But the impressive growth figures are finite – so when could the value comeback start?
For some time now, value stocks have not been able to hold a candle to growth stocks. The study published by StarCapital in October 2019 therefore deals with the continuing weakness in value – and apparently there are many reasons for this. In the period from 2000 to 2007, value stocks performed exceptionally well, which increased the probability of a countermovement.
On the other hand, a few growth stocks such as Facebook, Alphabet or Amazon dominated events and thus reinforced the counter-trend: they not only survived the bursting of the dotcom bubble, but also asserted themselves as highly profitable. As a result, the growth stocks were able to score significantly longer with their key figures than in previous cycles.
Last but not least, the business models, which proved to be quite stable, were able to convince investors – even as bond proxies, as the market for stable and first-class bonds is bought empty. Another element supporting growth stocks is the strong rise of ETFs: the major indices such as S&P500 measure the stocks according to market capitalization, which in turn disproportionately promotes the concentration on large, expensive companies such as Microsoft or Amazon. It is currently impossible to predict how long this trend will continue – many factors play a role here.
These include, for example, the profitability of growth companies, as they would not be able to maintain the high rates of growth and profitability simultaneously for long – and then the hour of value stocks will come.
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