Value Stocks Have More Room To Run

Value stocks have had an exceptional couple of years relative to growth stocks, and AMG doesn’t see that changing anytime soon.

While growth stocks dominated the market from 2008 through the COVID-19 lows of 2020, it is quite likely that the economic and market environment will continue favoring value stocks. Historically, value stocks have outperformed growth over the very long run, but this outperformance has come in streaks lasting four to seven years—implying they have at least another few years to run this time around.

The outperformance of value stocks isn’t a surprise—AMG has recommended a value tilt for a while. Growth stocks initially performed well off the COVID-19 lows of March 2020 based on the trillions of dollars the government authorities spent on pandemic relief. But the fundamental support for value stocks has become more dominant than the liquidity supporting inflated growth-stock valuations. Value stocks have benefited from strong earnings driven by nominal GDP growth (real GDP plus inflation), broader sector diversification, cheaper valuations, less interest-rate sensitivity and higher dividend yields. In recent years, value stocks have generated strong total returns, with earnings growth plus dividends outperforming both the broader equity markets and bonds.

AMG Capital Management (ACM), a division of AMG National Trust, manages portfolios of stocks using a value-oriented approach. ACM’s well-diversified portfolio strategies are constructed using fundamental analysis of company balance sheets, cash flows, dividends, macroeconomic sensitivity and valuations. ACM portfolio strategies are available for various asset classes—U.S. large- and small/mid-capitalization as well as global.