Talk about the bear market turning the S&P 500 upside down. More than a few growth stocks are now actually cheaper than value stocks.
Twenty stocks in the S&P 500 Pure Growth index, including health care darling Moderna, chipmaker Qualcomm and fallen social networking giant Meta Platforms, are now cheaper than the average stock in the S&P 500 Pure Value index, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
These 20 "growth" stocks sport current trailing P-E ratios of 19.4 or less. That's an interesting number as it's the average valuation of the 116 stocks in the S&P 500 Pure Value index.
Savvy investors know to not obsess on P-E ratios. But they're still a guide. And this drop in some growth stocks' valuation to value stock territory is the most dramatic sign yet of just how out of favor many are.
"The growth vs. value debate has been pretty one-sided in 2022, with value outperforming growth for a sustained period for the first time in almost 15 years," said Thomas Shipp, quantitative equity analyst at LPL Financial.
Growth S&P 500 Stocks Go Value
Given just how much growth is lagging value stocks, it was only a matter of time before this valuation flip-flop happened.
This year, the SPDR Portfolio S&P 500 Growth ETF is down a crushing 25.4%. But at the same time, the SPDR Portfolio S&P 500 Value ETF is only off 5.7%. A massive drop in some growth stocks is leading to topsy-turvy valuations. Shockingly, a third of pure value stocks now trade at lower valuations than the average growth stock.
Take Meta for example. The social media giant pivoting into virtual reality is now trading for just 11.1 times its adjusted profit over the past 12 months. That's due to a brutal 65% crash in the stock's price this year. It's amazing to think just in January, the stock traded for more than 24 times its profit, well above what typical value stocks trade for now.
Fallen Growth Champs Get Value-Priced
Does it seem like ancient history when Moderna's vaccine technology was supposedly going to fuel all sorts of medical advances? S&P 500 investors can't seem to remember it either.
Shares of Moderna, following a 27% drop this year, trade for just 6.7 times their adjusted profit over the past 12 months. Back in January, investors were willing to pay more than double that valuation.
And just a few months ago, all the talk was about a shortage of computer chips. Shares of mobile chip designer Qualcomm traded for 23 times their trailing profit. Now, they're only willing to pay 10 times. And it joins other growth stocks in the chip industry like Applied Materials with low valuations.
To be sure, not all growth stocks' valuations have collapsed. On average, the stocks in the SPDR Portfolio S&P 500 Growth ETF still trade for nearly 36 times their earnings, roughly double the value stocks' valuation.
And there are still some nosebleed growth-stock valuations like Enphase Energy with a 226 P-E, Amazon.com at 89, Tesla at 60 times and even Apple at nearly 25 times trailing earnings.
But it's clear, investors want to get what they pay for.
Growth Stocks In Bargain Bin
S&P 500 Pure Growth stocks trading for less than average value-stock valuation
| Company | Ticker | Stock year-to-date % ch. | Trailing P-E (lower is cheaper) | Sector |
|---|---|---|---|---|
| NRG Energy | 0.9% | 5.5 | Utilities | |
| Moderna | -27.0% | 6.6 | Health Care | |
| Discover Financial Services | -10.3% | 6.7 | Financials | |
| Diamondback Energy | 54.9% | 6.8 | Energy | |
| Signature Bank | -54.3% | 7.2 | Financials | |
| Devon Energy | 67.1% | 7.7 | Energy | |
| SVB Financial | -64.6% | 8.9 | Financials | |
| Goldman Sachs | 0.1% | 10.2 | Financials | |
| Qualcomm | -31.1% | 11.0 | Information Technology | |
| Meta Platforms | -65.2% | 11.1 | Communication Services | |
| Expediters International of Washington | -13.9% | 12.1 | Industrials | |
| Lam Research | -31.8% | 14.0 | Information Technology | |
| Applied Materials | -29.8% | 14.7 | Information Technology | |
| Camden Property Trust | -35.8% | 15.0 | Real Estate | |
| Regeneron Pharmaceuticals | 15.4% | 15.3 | Health Care | |
| First Republic Bank | -36.8% | 15.5 | Financials | |
| Generac Holdings | -69.4% | 16.2 | Industrials | |
| Lowe's Companies | -19.2% | 16.5 | Consumer Discretionary | |
| KLA | -10.4% | 17.4 | Information Technology | |
| Pool | -38.8% | 17.7 | Consumer Discretionary |
