Monday, April 14, 2014

Value stocks beating growth stocks

 A transition among U.S. stock investors toward value and away from growth may just be getting started, according to Barry Bannister, Stifel Financial Corp.’s chief equity strategist.

The chart illustrates the shift by tracking the ratio between the Standard & Poor’s 500 Pure Value and S&P 500 Pure Growth indexes, which closed yesterday at its highest level since August 2010. The gauges are comprised of S&P 500 stocks that best fit into either category.

“There’s a value rotation going on,” Bannister said yesterday in an interview on Bloomberg Radio. The move is “a sign that there’s a little more confidence” in the economy’s ability to grow globally, the Baltimore-based strategist said.

A performance contrast among raw-material producers and health-care stocks highlights the trend, he said. The S&P 500 Materials Index rose 7.8 percent from Feb. 3, when the broader index fell to this year’s low, through yesterday. The S&P 500 Health-Care Index ranked last during the period among 10 main industry groups, with a 2.1 percent gain.

Bannister said he favors materials, along with energy and industrial stocks and shares of technology providers that serve companies rather than consumers. The latter group is in position to benefit from increased capital spending, he said.

S&P uses three criteria to determine pure-value stocks: share price relative to earnings, sales and book value, or the value of assets after subtracting liabilities. The pure-growth category is based on share price relative to earnings gains, sales increases and stock momentum.

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