Value stocks have recently experienced significant underperformance, with their total return declining for 12 straight sessions—a rarity that has only occurred twice since 1926. This trend has left analysts questioning whether a rebound could be on the horizon by 2025, particularly as growth stocks continue to dominate investor interest. Historically, extended declines in value stocks have often been followed by a strong recovery, fueling optimism about a potential turnaround.
Why are value stocks under pressure?
The current low valuation of value stocks relative to growth stocks, as noted by BTIG Research, is at its most extreme level in four decades. Investors have been steering away from value stocks, which are typically associated with lower price-to-earnings ratios and solid fundamentals, in favor of high-growth opportunities. This sentiment has been exacerbated by the technology sector’s dominance in recent years, which has overshadowed traditionally safer, dividend-paying stocks. A market correction, however, could renew interest in these overlooked assets.
Will 2025 favor large-cap value stocks?
Analysts suggest that 2025 might bring a shift back to value investing, particularly in large-cap stocks with robust dividends. Companies like British American Tobacco, Chevron, Pfizer, and Verizon are being highlighted as potential opportunities for growth and income-focused investors. These firms boast strong fundamentals, attractive dividend yields, and lower trading multiples, making them appealing candidates for portfolios seeking stability in uncertain economic conditions.
Historical patterns show periods of value stock underperformance often lead to subsequent recovery phases. For example, after a similar streak of losses in 1978, value stocks rebounded by 24.4% within a year. This historical context provides a basis for optimism, although it is not a guarantee of future performance. Investors are encouraged to weigh the risks and opportunities carefully.
Companies like Chevron have been making strategic moves, such as its $53 billion acquisition of Hess, which could bolster its position in the energy sector. Meanwhile, Pfizer is banking on its diversified biopharmaceutical pipeline despite recent challenges related to declining demand for COVID-19-related products. Similarly, Verizon’s focus on expanding services in both consumer and business segments underscores its commitment to long-term growth.
Previously, the appeal of value stocks fluctuated with market conditions. During the late 1970s, inflationary pressures and rising interest rates pushed investors toward value-oriented strategies. Similarly, post-recession recoveries in the 2000s saw a resurgence in demand for dividend-paying stocks as safer bets. These trends highlight the cyclical nature of investor preferences between growth and value assets.
As economic uncertainties linger, value stocks, particularly those offering dividends and strong fundamentals, could play a role in diversifying portfolios. However, their performance will depend on factors such as interest rate movements, inflation trends, and market sentiment surrounding riskier growth assets. Investors should also consider the potential impact of macroeconomic events, such as shifts in fiscal policy or geopolitical developments, on their portfolio decisions.
