what is the difference between value stocks and growth stocks?

Answer 1

Value investors actively seek stocks of companies that they believe the market has undervalued. They believe the market overreacts to good and bad news, causing stock price movements that do not correspond with the company's long-term fundamentals. The result is an opportunity for value investors to profit by buying when the price is deflated.

Typically, value investors select stocks with lower-than-average price-to-book or price-to-earnings ratios and/or high dividend yields.

In most cases a growth stock is defined as a company whose earnings are expected to grow at an above-average rate than its industry or the overall market. ". Low PEGs are a good indicator of a growth stock.

Although, it is often said that growth investing and value investing are diametrically opposed, a better way to view these two strategies is to consider a quote by Warren Buffett: "growth and value investing are joined at the hip
---

Answer 2

This is a very debatable topic. Unfortunately, there is no agreed-upon definition for these terms.

In general, a value stock is one which is selling at valuations lower than the market's average. This is mostly determined by the Price to Earnings Ratio (PE ratio) and the Price to Book Ratio. For example, the average PE of the overall market right now is around 18. Therefore, value stocks would be the ones that have PEs below 18. Value stocks tend to be from companies who are not performing well right now or whose potential has not yet shown itself.

A growth stock is from a company who is expected to grow more than the average company in its industry. Hence, growth stocks sell at higher valuations. For example, a stock that sells for a PE above 18 would be considered "growth". Investors are willing to pay a higher amount for the company's earnings because they beleive the company will grow at a relatively fast rate.

A growth stock can turn into a value stock and vise versa. It all depends on the mood of the general public and how the company is performing or is expected to perform. And most growth stocks were originally considered value.

It is debatable which is more risky. Some say that value stocks have more risk because the company is not doing so hot at the moment. Hence, the low price reflects the risk that investors perceive.

Others will argue that growth stocks are riskier because you may have paid too high a price for the company's growth. The risk is that your investment might not be as profitable as you anticipated. With value stocks, the price is low relative to the earnings, so there is less room for the price to fall should the company falter.

For an interesting theoretical discusson on growth verses value, download my free book at http://www.invest-for-retirement.com and go straight to pages 123 - 126.

IMO, investors make too much of these terms. Besides, the terms themselves can be misleading. We all want to purchase stocks we feel have a good "value" and that will eventually "grow". I don't know of any investor who says, "I want to purchase overpriced stocks from a lousy company that will never grow." So, the terms themselves are kinda blurry.

There are periods of time where value stocks will dominate, followed by periods of time where growth stocks will dominate. Personally, I own equal amounts of each in my mutual funds. This way, I do not have to guess which type will be most profitable the upcoming year.

Answer 3

Value stocks usually have lower P/E ratios and are out of favor with investors. They qualify as a "value" stock if they are still solid companies and worth investing in. Value stocks are in effect "on sale," selling for less than they are really worth.

Growth stocks usually have high P/E ratios and are popular with investors, for the good reason that the companies are growing, or at least, that they are anticipated to have strong growth sometime in the future. You pay a premium for growth stocks because they are expected to grow so much.

Answer 4

A growth stock is one that is expected to be worth more because the company itself is growing. Think of Starbucks, and how many places don't yet have a Starbucks. Or McDonald's in the 1970s when they were opening hundreds on new restaurants a year.

A value stock is one that has gone out of favor because of some temporary bad news, like bad earnings for one year after a string of great years. Example: look at a long term chart of Motorola. Every so often they get hit with bad news, then recover. When they are at the bottom of the dips they are a value stock,

Answer 5

This is a very good question.

The first answer is incorrect, disregard...The first answer implies that value companies are safer and that growth companies are smaller. This is incorrect...

Value and Growth refer to a methodology of investing.

Value investing is looking at the fundamentals of a company (financial statements) and comparing these to the current share price of the stock. If the analysis says the company is undervalued compared to the price of the stock, then a value manager will invest in the company.

Growth investing is looking at the potential of a company. Looking at things like market-share potential, high P/E ratios, research and development of a company. You quintessential growth companies are technology and health sciences companies.

I hope this helps.

Answer 6

Growth stocks are also usually a little bit more risky than value stocks.

Answer 7

This penny stock service has years of proven experience. Ultimately it is the best service for beginners to use https://tr.im/pennystocks
You will have to wait between 3 and 10 days to get into the system in most cases. When I signed up it took 8 days. I wished it was faster, but if you can wait a week or two to start earn life changing money than you will have what it takes to make it in this business.

Answer 8

Value means that the company has a strong earnings base and is stable. Think of big businesses that make steady incomes.

Growth stocks are ones that have a lot of room to expand. They're typically smaller and more volatile.

Answer 9

value has a better yield usually assoicated with financials and utilties growth is usually growing companies some do pay dividends but growth means excatly that its growing.