When The Value Stocks Take Over From The Growth Stocks

They don’t raise a warning flag or sound some kind of alarm because no one really notices at first. The transition is so subtle and low key that even Wall Street’s most sophisticated artificial intelligence tends to be late to the change of scenery. A few old timers may make some noises but the smart kids running the big funds tuned them out long ago.

Those caught off guard keep getting invited on to CNBC to sadly explain away the 30% or 40% drops in price attached to anything sporting the formerly worshiped “innovation” word. The new highs list begins to show names other than the big tech and social media giants. Instead, there are steel companies you haven’t heard of in years and some old school brand name insurance companies.

Here’s the weekly price chart for the NASDAQ
NDAQ
-100:

It was a nice run from the March, 2020 pandemic lows all the way up to the November, 2021 peak. The failure to make a new high in December presaged the subsequent dive once the new year began. From 16500 down to 13000 before this index finally bounced — the major components, Apple
AAPL
, Microsof
MSFT
t and Google
GOOG
are all trading below that November/December, 2021 high. Tesla
TSLA
, Twitter and Facebook are well below their previous highs.

Here’s the extreme version of the above, the weekly price chart for the ARK Innovation ETF:

Focused entirely on so-called “disruptive innovation” equities, this sort of benchmark for that sector peaked in early 2021 and has headed dramatically lower. From almost 160 down to its most recent price of about 57, those chasing hot new concepts are being taught a lesson about that type of plan.

Now, here’s the weekly price chart of the iShares Russell 1000 Value ETF:

You can see the strong move up from March, 2020 and the January, 2022 peak. The difference with this value stock fund benchmark is that although the price dropped from there, it’s mostly recovered and basically held. The managers work on identifying value rather than relying on a story about a hot concept, a traditional approach closely associated with Benjamin Graham, Warren Buffett and Charlie Munger.

I want to show you 2 stocks that recently hit the new highs list so you can get a feel for the new vibe.

This is the weekly price chart for Allstate Insurance, a stock you won’t find in that “innovation” fund:

Seemingly unaffected by concerns about inflation or rising interest rates, the property and casualty insurance company just keeps managing higher prices. Allstate has a price earnings ratio of 8.38, trades at 1.77 book value and pays a 2.41% dividend yield. Goldman moved it from their “sell” list to their “buy” list on March 2nd.

Here’s another one in a completely different sector. The weekly price chart for Commercial Metals
CMC
is here:

Obviously, in the materials sector, this stock has steadily increased in value from March, 2020 until now. The low then was 10 and the most recent price is 44. It’s the sort of move you’d want to see if you’d been looking for “innovation” stocks, but Commercial Metals is definitely value-ish with a price-earnings ratio of 6 and paying a 1.6% dividend yield.

These are examples of value stocks continuing to move higher at a time when growth stocks are struggling. How long this change in the character of the market can continue is anyone’s guess, but for now, it’s unmistakably worth nothing.

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Not investment advice. For educational purposes only.