“Cheap” stocks in the S&P 500 aren’t synonymous with lagging performance anymore — at least not this year so far.
Thirteen stocks, including materials firm Nucor (NUE), consumer discretionary The Gap (GPS) and energy firm Marathon Oil (MRO), remain purely in the S&P 500 Value index of “cheap” stocks despite jumping more than 50% this year, says an Investor’s Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. And seven of these top-performing S&P 500 Value stocks carry an IBD Composite Rating of 90 or higher — showing their fundamentals and stock action outrank 90% of all stocks.
It’s just the most powerful sign yet of the S&P 500’s leadership shift to “value” priced stocks and away from growth. Eight of the top 10 performing S&P 500 stocks this year are listed purely in the S&P 500 Value index.
“Investors should diversify beyond mega-cap tech companies and rotate into cyclical and value-oriented areas of the market that should continue to benefit from higher yields and a broadening economic recovery,” said Andrea Bevis, senior vice president of UBS Private Wealth Management.
Value Doesn’t Mean Laggard Anymore
Value S&P 500 stocks carry lower valuations than their growth counterparts. But their stock prices continue to pull away from growth members. Now the separation is turning into a gulf.
The Vanguard S&P 500 Value ETF (VOOV) is now up more than 16.3% this year. That puts the value index more than 10 percentage points ahead of the Vanguard S&P 500 Growth index, which is up just 6.1%. The fact the Vanguard S&P 500 (VOO) is up 10.8% this year is largely due to a rally in value stocks.
And get this: There’s only one purely growth stock among the top 20 in the S&P 500 this year so far. And even that, IBD 50 member SVB Financial (SIVB) is hardly the kind of stock investors think of as growth.
In fact, S&P 500 Value stocks are doing so well, they’re far from as cheap as they were. Now, the 262 pure value stocks in the S&P 500 on average trade for 31 times their earnings the past 12 months. That’s still far below the 47 average P-E of S&P 500 growth stocks. But higher from the lows of years past.
And that’s due to some solid jumps by value stocks.
Nucor: An S&P 500 Value Stock For The Ages
Steel maker and Big Cap 20 member Nucor is reminding investors why it’s never a stock to be ignored. The S&P 500 Value stock, with a P-E of just 18.9, is up a staggering 91.7% just this year. That makes it the No. 1 performer in the S&P 500 this year so far.
It’s a welcome change for patient value investors. Shares of Nucor sagged 5% in 2020. But with the economy reopening and the U.S. ramping up spending on infrastructure, investors are looking for a big year for Nucor. Analysts think Nucor will earn $11.92 a share this year, up more than 170% from last year.
Investors may recall Nucor has a history of big outperformance. It was actually the top S&P 500 stock to buy in 1969, 1970, 1971 and 1972 and hold until today.
High Hopes For S&P 500 Value Turnarounds
And here’s another twist. This year, investors lost patience with many speculative money-losing S&P 500 companies. But at the same time, they’re buying up shares of many money-losing value-priced companies expecting a comeback.
Six of the 13 top-performing pure S&P 500 Value stocks lost money in the past 12 months. Take apparel seller, The Gap. Shares are up 74.8% this year, making it the No. 3 stock in the S&P 500 this year, even though it lost 56 cents a share in the last fiscal year. This fiscal year, the company is seen making a profit of $1.34 a share.
It’s a similar story in the battered energy sector in the S&P 500. Marathon Oil witnessed a 72.3% jump in its stock price this year. But the pure S&P 500 Value company lost $1.16 a share in 2020. That’s ancient history, now, though as analysts see the company making more than $400 million, or 55 cents a share, this year.
If these rallies continue, these “cheap” stocks won’t be such a value.
Top S&P 500 Value Stocks This Year So Far
|Company||Symbol||Stock YTD % Ch.||Sector||Composite Rating|
|The Gap||(GPS)||74.8%||Consumer Discretionary||66|
|Capital One Financial||(COF)||56.6%||Financials||94|
|Mohawk Industries||(MHK)||55.7%||Consumer Discretionary||94|
|News Corporation*||(NWSA)||53.8%||Communication Services||87|
|Fifth Third Bancorp||(FITB)||51.0%||Financials||94|
Sources: IBD, S&P Global Market Intelligence, *News Corp. is the holding company of IBD