Could Value Stocks Repeat Their Vast 2022 Outperformance in 2023? Here's What Analyst Says.

According to analysts at Investor's Business Daily,

After more than a decade of lackluster returns, the value factor beat the broader market in 2022 and outpaced rival growth stocks by the widest margin since 2000.

For years, value stocks sported cheaper valuations than their flashier growth-stock peers based on their price-to-earnings ratios (P/E ratios) — one of the most commonly used metrics on Wall Street to help determine how richly, or cheaply, valued a given stock has become.

But that discount has now disappeared, as the 12-month trailing P/E ratios of the largest value stocks traded in the U.S. are now roughly equal to the P/E ratios of the largest growth stocks. Andrea Cicione, head of research at TS Lombard, highlighted this in his latest month's chart..

In the chart, Cicione compared the historical ratios for both the S&P 500 value index and S&P 500 growth index. According to Cicione, there might be a sign that value stocks have exhausted their ability to outperform.

Megacap growth stocks for a decade as the Fed kept interest rates near zero fueling the bull market cause, leading to more speculative, growth-oriented assets gaining outsized returns. In contrast, companies with slower sales growth prospects tend to be left behind. However,the Fed's decision to raise rates at an aggressive pace caused the situation to reverse as the value of future cash flows from growth companies became less attractive relative to more stable investments.

Bonds and companies with solid dividends and balance sheets (often exhibited by companies that fall under the value stock banner) look like more attractive options than those that lure investors with the prospect of significant sales growth.

So far, at least, value stocks have continued to outperform in 2023. The iShares S&P 500 value exchange-traded fund has risen 5.56% since the start of the year, according to moomoo data, while the iShares S&P 500 growth ETF is up 1.27%.