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Too Soon for Growth Stocks - UBS

Stock Markets Aug 04, 2022 04:32PM ET
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© Reuters. Too Soon For Growth Stocks - UBS

By Sam Boughedda

UBS analysts said in a note to investors on Thursday that it's too soon to move back into growth stocks.

The analyst explained that while the recent rally is encouraging, they continue to maintain a selective approach to longer-term growth stocks and keep their preference for value over growth in the near term.

"Growth stocks have rebounded from their mid-June trough driven by lower U.S. yields and better-than-feared 2Q results from mega-cap tech companies," said a UBS analyst. "The Nasdaq and FANG indexes have both rallied by 19% since mid-June. And the MSCI ACWI growth index, which lost 28% in total returns during the first half, has rallied 12.7% since mid-June, outperforming the MSCI value index by 9.4 percentage points."

The analyst also pointed to recent earnings, with Meta (NASDAQ:META) disappointing but investors reacting positively to others from Google (NASDAQ:GOOGL), Spotify (NYSE:SPOT), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), and Apple (NASDAQ:AAPL).

But "with near-term uncertainty around inflation, Fed policy, and global growth, we continue to favor investing in value with a quality tilt, energy stocks, and the U.K. market. Our analysis, stretching back to 1975, shows that when inflation has been above 3%, value stocks have outperformed growth stocks, regardless of the stage of the economic cycle. Furthermore, growth stocks are still expensive relative to value stocks. In the U.S., for example, the P/E valuation premium for the Russell 1000 Growth index compared with the Russell 1000 Value index is around double the long-term average of 35%," concluded the analyst.

Too Soon for Growth Stocks - UBS
 

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