Is 2024 a great time for value stocks?

The incredible returns the S&P 500 (SPY) enjoyed in 2023 will likely be a thing of the past now that the calendar flips to 2024. Instead, the average investor should expect very modest returns. But people who have a taste for value stocks expect very strong performance. why is that? And what are the best value stocks to discover right now? Read below for the answer.

There’s good reason to believe that value stocks are here to stay this year. This is great news for anyone using the POWR rating system considering the value bias.

That’s because 31 of the 118 factors analyzed for each stock are value metrics. In other words, we go far beyond just PE, book value, and sales ratios to determine each stock’s complete value proposition.

This POWR Ratings analysis combined has returned 4x the S&P 500 (SPY) dating back to 1999. And yes, there are signs that our advantage will be pushed back in the year ahead.

Why does the forecast look so favorable for value stocks?

The answer is the focus of today’s commentary below…

Market commentary

Some of us think it’s always a good time to become a value investor. That’s because overpaying for stocks just doesn’t make sense.

Because, why pay too much for something?

Would you buy a new TV for $1,200 if you knew you could get the exact same TV from Amazon for just $799? of course not!

In fact, the very act of initially determining that a stock is undervalued aligns investors with the outperformance that unfolds as other investors discover the stock’s appeal. This is something that has been pointed out by many classic investors, including the father of value investing, Benjamin Graham, and his most famous disciple, Warren Buffett.

Unfortunately, market trends do not always align with this notion that value is always in fashion. That was certainly the case in 2023, when growth stocks took control. It makes perfect sense if you understand the general rhythm of the market.

Best time for growth stocks

The classic idea is that a bull market is a time to buy growth stocks. This is especially true at the beginning of a new bull market, as these growth stocks experience the most severe price declines during the bear market phase.

It helps us understand the cycle of fear and greed in the workplace. As the pendulum swings in fear, growth stocks get hammered to extreme levels.

Once the bear market’s foot is taken off investors’ necks, these growth stocks soar on the idea of ​​an upcoming economic expansion that will drive earnings growth and stock price appreciation.

A case in point is the +67.64% gain in 2023 for the ARK Innovation ETF (ARKK). This was a full 2.5 times the S&P 500 in the same year.

Best time for value stocks

The flip side of the coin above is that value strategies work best in bear markets. When investors become more discerning about the stocks they own.

This is illustrated when I share that the Top 10 Value Stock Strategy (the basis of the POWR Value newsletter) enjoyed a +9.18% return in 2022 during the bear market decline.

Not surprisingly, the aforementioned ARK Innovation ETF, chock-full of everyone’s favorite growth companies, plummeted -66.97% on the year as investors fled growth stocks like the plague.

But bear markets aren’t the only times when value strategies become popular. This also occurs during the later stages of a bull market when valuations are near their highest levels.

During times like these, when the overall market returns are modest to negligible, investors have to dig a little deeper to find stocks with value. A case in point was 2018, a full nine years into the secular bull market that began in 2009.

There, the S&P 500 has lost -4.57% for the year. Still, our Top 10 Value Stocks strategy delivered a solid return of +16.20%.

Importantly, I think 2024 will be a year of modest returns for the overall market, driving people to focus on approaches to enjoy better returns.

This may seem like an odd statement since many say a new bull market will only begin in 2023. Therefore, there should still be plenty of time to follow suit and upside room.

Once again, let’s understand the unique nature of the 2022 bear market. Yes, the stock market has fallen more than 20% from its all-time high, so it technically qualifies as a bear market.

However, the forewarned recession never materialized, so it was a very shallow bear market. In response to this, stock prices recovered vigorously in the second half of 2022 and continued until 2023.

This stage was the perfect time for underperforming growth stocks to be bid up again. Now, with the overall market near all-time highs and no material increase in next year’s earnings outlook, the stock is once again well-valued.

More specifically, FactSet pegs the S&P 500’s forward P/E ratio at 19.3. This is significantly higher than the 10-year average of 17.6. This indicates that the overall market is well valued.

It is usually at this stage, when most questionable stocks have returned to full valuations, that market-wide indexes begin to show lukewarm results. This means that after the S&P 500’s 26% rise in 2023, the index is likely set for a very modest return.

In a previous comment, I even predicted that the 2024 upside target was likely to be $5,200, which would only represent a return of about 8%. I wouldn’t be surprised if it were lower than this…but this is for average stock prices.

Yes, I think it’s likely that value will come back into play in the coming weeks and months. His first three-day results of 2024 seem to prove this.

-1.70% S&P 500 (Large Cap)

-3.42% Russell 2000 (Small Cap)

+1.91% Top 10 Value Stocks

The next question is definitely “Where can I find the best value stocks right now?”

More on that in the next section…

What’s next?

Explore our current portfolio of value stocks packed with superior benefits from our unique POWR Ratings model.

It includes direct access to the Top 10 Value Stock Strategies to Watch in 2024, with plenty of room for action.

If you’d like to learn more and benefit from my 43 years of investing experience, click the link below to get started today.

Steve Reitmeister’s trading plans and recommendations >

I wish you success in your investments.

Steve Reitmeister…but everyone calls me Leity (pronounced “righty”)
StockNews.com CEO, Reitmeister Total Return Editor

SPY stock was trading at $469.87 per share Friday morning, up $2.59 (+0.55%). Year-to-date, SPY has declined -1.14%, while the benchmark S&P 500 Index has gained % during the same period.

About the author: Steve Reitmeister

Steve is better known to StockNews readers as “Reity.” Not only is he the CEO of the company, Reitmeister also shares his 40 years of investment experience in his portfolio. Learn more about Reity’s career and find links to his latest articles and stock picks.

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