Growth vs. Value Stocks: Which Is Best for Investors in 2024?

It’s one of the longest-running debates in the world of investing: Should people invest in growth companies, or are value stocks a wiser investment?

Unsurprisingly, both sides have convincing arguments, so we’ve decided to compare them in our growth stocks vs. value stocks analysis.

Here, we examine the difference between growth and value stocks and the various pros and cons of the two approaches.

Table of Contents Table of Contents

1. Key Takeaways
2. What Is Growth Investing?
3. What Is Value Investing?
4. Growth vs. Value Stocks: Side-By-Side Comparison
5. Growth vs. Value Stocks: Performance Analysis
6. Growth vs. Value Fund Options
7. The Bottom Line: Should I Invest in Value or Growth Stocks?
8. FAQs
9. References

Show Full Guide

Table of Contents

1. Key Takeaways
2. What Is Growth Investing?
3. What Is Value Investing?
Show Full Guide
4. Growth vs. Value Stocks: Side-By-Side Comparison
5. Growth vs. Value Stocks: Performance Analysis
6. Growth vs. Value Fund Options
7. The Bottom Line: Should I Invest in Value or Growth Stocks?
8. FAQs
9. References

What Is Growth Investing?

Let’s start with growth investing.

Growth stocks are those that are expected to grow their earnings, margins, or market share, according to Darius McDermott, managing director of Chelsea Financial Services.

He told Techopedia:

“Investors are willing to pay a premium with the expectation of selling them at even higher prices as they continue to grow.”

The valuation of growth shares is based on expectations of high future profits, according to Kyle Caldwell, funds and investment education editor at interactive investor.

“Some growth companies are deemed high-quality stocks due to having certain qualities that competitors struggle to replicate, such as having big brands, intellectual property, and captive customers due to providing essential products or services,” he said.

Examples of Growth Stocks

The AI-fueled technology boom has provided investors with plenty of growth stock examples over the last couple of years.

It’s one reason why Morningstar named the US software giant Microsoft (MSFT) a growth stock to buy for the long term. It stated:

“We believe Microsoft enjoys a position of excellent financial strength arising from its strong balance sheet, growing revenue, and high and expanding margins.”

Other growth companies named by Morningstar included Taiwan Semiconductor Manufacturing (TSM), investor Warren Buffett’s Berkshire Hathaway (BRK.B), and pharmaceutical giant AstraZeneca (AZN).

Morningstar pointed out that AstraZeneca has “one of the strongest pipelines,” with several key products in development that hold blockbuster potential.

What Is Value Investing?

Value investing is a relatively simple concept: You buy into good quality stocks that are undervalued and cash in when the stock market realizes their true worth.

According to Kyle Caldwell at interactive investor, it’s an investment style based on finding shares that appear to be mispriced by the market.

He told Techopedia:

“Such out-of-favor companies tend to have a low price/earnings (PE) ratio, which compares a company’s value with its profits. If the company pays dividends, it will tend to have a high dividend yield.”

So, what are value stocks, and how can you spot them? Well, they are classed as being cheap, according to McDermott at Chelsea Financial Services.

“The most traditional way of calculating this is in terms of ‘book value’ or the net assets on a company’s balance sheet,” he said. “If the company’s net assets are greater than the value of the company implied by its share price, it is considered to be a value stock.”

Examples of Value Stocks

Morningstar has identified British American Tobacco (BATS) as one of the 10 best long-term value stocks.

It highlighted how the company had “been the most aggressive” of the Big Tobacco makers with pushing into new generation products, such as vaping.

Imperial Brands (IMB), another tobacco company, also makes Morningstar’s value company list, alongside two drug companies: Pfizer (PFE) and Gilead Sciences (GILD).

It suggested that Pfizer was trading at a significant discount to its fair value estimate and pointed out the market underappreciated the line-up of potential blockbusters.

Of course, the list of the best value stocks will change over time, largely depending on whether their potential value is recognized by the wider market.

Growth vs. Value Stocks: Side-By-Side Comparison

Here we look at the major comparison factors of value stocks vs. growth stocks.

However, it’s sometimes not quite so clear cut, according to Ben Yearsley, director of UK-based? Fairview Investing.

He told Techopedia:

“The reality is there is no set definition. One investor’s growth might be perceived as value by another.”

He pointed out that most companies start out growing and then plateau when the opportunity set diminishes.

Growth vs. Value Stocks: Performance Analysis

Obviously performance is a favored measure when you’re comparing value vs, growth stocks, but this largely depends on the time horizon being analyzed.

For example, McDermott of Chelsea Financial Services pointed out that value stocks have delivered better returns over the very long term. He explained:

“The theory goes that investors tend to overpay for exciting new growth companies and often these firms fail to meet their high expectations. By contrast, investors underestimate the ability of cheap value stocks to recover.”

Growth stocks have enjoyed the strongest performances over the past 15+ years, according to a report by Bj?rn Jesch, global chief investment officer at DWS.

“Since about 2007 economic conditions have created an environment in which, with one notable exception in 2022, growth stocks have flourished while value stocks have lagged,” he wrote.

The reality is that value and growth have historically alternated at regular intervals, he pointed out, although growth investing has enjoyed longer periods of outperformance.

“When the economy was doing poorly, defensive stocks such as utilities were in demand,” explained Jesch. “Growth stocks, by contrast, performed well when growth was only moderate.”

This type of environment, characterized by average levels of growth, has tended to persist for much longer periods of time, hence the reason for growth stocks having done so well.

However, the performances will vary over different periods. For example, DWS highlighted how value was ahead of growth back in February to March 2024.

Growth stocks also enjoyed a “sizable performance advantage” over value stocks in 2023, according to a report from Morningstar.

“The Morningstar US Growth Index outperformed the Morningstar US Value Index by more than 26 percentage points for the year,” it stated.

When you’re looking for a value vs. growth stocks performance chart, the best indexes to use are probably MSCI World Growth Index vs.

Growth vs. Value Fund Options

While you can buy individual stocks that fit either growth or value criteria, a more sensible approach is to opt for an investment fund with more diversified exposure.

There are a wide variety of such portfolios, so you’ll need to research what’s available, according to McDermott at Chelsea Financial Services.

“While many investment managers focus exclusively on growth or value stocks, some funds have adopted a blended approach,” he said.

The Bottom Line: Should I Invest in Value or Growth Stocks?

So, where should investors stand on the value vs. growth debate? This depends on several factors, including your investment objectives, attitude to risk, and the prevailing economic conditions.

All must be considered when deciding whether to invest in growth or value stocks – or even investment funds that embrace either style.

Of course, according to Ben Yearsley at Fairview Investing, there is a pretty straightforward solution to this conundrum: embrace both concepts. He suggested:

“Have both styles in your portfolio, that way, you will always have something performing well.”

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