Introduction – Growth Stocks vs Value Stocks
Your investing decisions make you cautious and others curious at the same time. Why cautious because you have to be very careful before pouring in your money and others will go curious about how you’re achieving good returns as result. It’s essential to counter some knowledge before taking any step ahead. Investors like you have different styles of investing, some like to play intraday, some are into SIPs, some are long-term investors, and more. Your potential to invest in the stock market requires a plan including the capacity to take risks, the tenure of your investment and things like this.
Various types of stocks offer returns in a discrete way depending upon their nature, market cap, size of the company, background of the company, the products it deals in, etc. In this article, we’ll discuss the concept of growth stocks vs value stocks, their meaning, how they work, and investing guide about them. Let’s begin with Growth Stocks.
The stocks whose profits will keep on growing in the coming times are referred to as the growth stocks. Growth stocks generally have the potential to leverage their returns for a period of time. The reason for such growth either lies in the company’s products and/or services or the company’s potential to beat its competitors and able to deliver extraordinary performance against its competitors’ business. Investing in growth stocks is totally a choice of the investors & traders and these can be any type of company say, small-cap, mid-cap or large-cap.
It is also said that the growth stock companies are generally the not-so-established ones and mostly look for expansion rather than distributing dividends to their stakeholders. This is because their idea is to cater for the maximum market and make space for themselves. The best 3 growth stock companies in India in 2022 are-
- Bajaj Finance (CMP- ₹7076.60, 28th July 2022)
- Britannia Industries (CMP- ₹3,869.35, 28th July 2022)
- Muthoot Finance (CMP- ₹1,063.90, 28th July 2022)
The value stocks are those whose market reputation is the best but are traded at a lower value than the rest of the stocks. These are well-established firms with already good market cap and investing in them is most fruitful in the long run as it is backed by strong fundamental analysis. Value stocks can be undervalued for many reasons like any senior official caught in some scandal, general violation of policies by the company or anything.
The growth of investing in value stocks is generally mapped by the investors/traders as these companies give steady returns over a period of time. Another point of attraction of value stocks is they mostly give regular dividends to the investors but are short of margin in the rise in their stock value. The 3 Best Value Stocks Companies in India in 2022 are-
- Sonata Software Ltd. (CMP-₹697.55, 28th July 2022)
- Avanti Feeds Ltd. (CMP- ₹435.50, 28th July 2022)
- HCL Technologies Ltd. (CMP- ₹943.10, 28th July 2022)
Growth Stocks Vs Value Stocks
A quick view at the major point of differentiation in both types of stocks. Here it is-
|Category||Growth stocks||Value stocks|
|Price||Currently overvalued.||Currently undervalued.|
|PE ratio||Above-average PE ratios.||Low PE ratios|
|Dividends||Low or no dividend yields||High dividend yields.|
|Risk||High volatility.||May not increase as expected.|
Mechanism of Growth Stocks Vs Value Stocks –
The concept behind the difference between growth and value equities is straightforward. Value completely outweighs development. Investors are responsible for determining their goals for goals-based investing and selecting growth or value companies accordingly. Growth companies have the potential to increase in value significantly but are noticeably more volatile than value stocks. Value stocks, on the other hand, are low-risk and provide consistent dividends, but they are unable to meet short-term investing objectives.
Investing in growth stocks for the short-term and value stocks for the long-term is the USP of growth and value stocks respectively. Investors prefer to keep value stocks for the long term since they provide them with consistent returns and share price growth. You can invest in growth stocks for the short term and sell all of your holdings or book profits to meet your expectations because growth stocks typically don’t pay dividends but appreciate by a significant margin.
Experts agree that diversifying among growth and value stock companies is the best strategy to play with. You can divide your funds and designate a portion for growth stock investments and the remaining half for value stock investments. By doing this, you may make sure that you can meet both your short-term and long-term financial objectives.
Which is Better To Invest? – Growth Stocks vs Value Stocks?
To make the choices between the two, here are some points to consider regarding which way to go.
Current Income in your Portfolio
As far as the current income is concerned, you can’t expect a growth stock to give you that as the profit of these companies is preferred to pour in the faster growth and expansion to garner the market better. Vice-a-verse with the value stock, you can expect a current income in the form of dividends from the profit potential of the company.
Stock Price Movement
As the price of the value stock of the company will remain stable and give returns over a period of time but when it comes to the growth of company stock, then the stock price movement cannot be traced and with the boom or boon move, the price of the stock can fluctuate.
Investments to Payoff
If you want it real quick, then invest in those value stocks which you think will be appreciated in the least time. Otherwise, the growth stock investments take time to flourish the benefits. Sometimes, you believe in a growth company stock but it will give returns in the longer run.
Trace the S&P 500 Growth Index & S&P 500 indexes to help you determine the next best growth vs. value stock to put your money in. The S&P Growth index chooses the stocks with the strongest price momentum and the best three-year growth in profits per share and revenue among its top 500 growth stocks whereas the S&P Value index chooses the stocks based on their valuation metrics.
Something that you should know!
The S&P 500 is not just a combination of growth & value stocks but has a level of bifurcation in both of them. So, the growth sector has mainly two sectors namely technology & consumer discretionary which is 40% in total of the S&P 500 index. On the other hand, the sectors like finance, energy, consumer staples, and industry related make up approximately 29% of such index.
Investing in any of the stocks can be the best or worst decision for the trader but what is important is your basis for taking such decisions. Again, your risk tolerance, your investment amount, and your duration of investment per se are the factors that should be considered before making any investing plan.
In the pointers mentioned in the column above, you are now well-equipped with how growth stocks vs value stocks work and how they gain/lose momentum in the market. None of your decision will be wrong but what is crucial is that you’ll learn all the aspects of the concerned stock and the company whether growth or value and then you get your money in that.
Rest, you know, Happy Investing!
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