American financial columnist and author Mark Hulbert thinks value stocks (the less cyclical firms which are usually cheap in relation to earnings, assets and/or cash flow) are set to outperform growth (more cyclical, earnings-driven) companies. Hulbert, who has had spells at Forbes, the Wall Street Journal and MarketWatch, acknowledges that "people have been predicting this for the last year" and admits that "so far it hasn't come to pass". But now he reckons a number of historical indicators are on his side.
Since March 2009 shares in growth companies have performed better than those in value companies as they have enjoyed the lion's share of the recovery in global stock markets. But Hulbert thinks that is set to change.
"We are heading for a period of turbulence, and value stocks are better equipped to deal with it than growth stocks." He notes that value stocks have "better balance sheets and more cash to help them out in tough times". And Hulbert, who has edited an eponymous financial newsletter digest for more than 30 years, thinks value stocks also have history on their side. "The US presidential cycle has a big effect on each type of company. Indeed, value companies perform best against growth companies in the fourth year of a president's term and we enter that year in October."
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Hulbert's other ally is reversion to mean. "Since 1926 value companies have trashed growth stocks. But in the last few years value has lagged behind. At the moment stocks aren't following their historical precedent and eventually we will see reversion to the mean."
However, he warns investors that making the switch from growth to value isn't necessarily the path to a quick buck. "This is not a short term thing. It could happen in a year or it could take several."
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