How Analysts Rate Growth And Value Stocks?

How Analysts Rate Growth And Value Stocks?

In the last years, the difference between a growth stock and a value stock has been a bit blurred. Traditionally a growth stock did not pay a dividend and did not buy back its own shares; the company rather reinvested its retained earnings in its fast growing business. On the other hand, a value stock was characterized by high dividend yield, low price-to-book ratio and low price-to-earnings ratio. However, these days, investors can find fast growing companies that pay a rich dividend and have a low P/E ratio. Let us take Apple Inc. (NASDAQ:AAPL) stock as an example; is it growth or value stock?

Apple’s earnings per share have grown by an impressive annual compound average rate of 42.40% during the last five years, and it is expected to grow by an annual compound average rate of 15.37% over the next five years; hence it can be considered a growth stock. However, Apple pays a dividend yielding of more than two percent, and its next year forward P/E ratio is very low at 13.14; therefore, it can also be considered a value stock.

The tables below show the main holdings of the two popular large cap ETFs; iShares Russell 1000 Growth Index (ETF) (NYSEARCA:IWF) and iShares Russell 1000 Value Index (ETF) (NYSEARCA:IWD). These ETFs follow the Russell 1000 Growth Index and the Russell 1000 Value Index. The tables show the trailing P/E, the dividend yield, the annual compound average EPS growth for the past five years, and the annual compound average EPS growth estimates for the next five years.

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Growth Stocks

Value Stocks

value stocks

Surprisingly, there is not a significant difference between the parameters of both groups of stocks. The growth stocks also pay a dividend, some of them like Verizon Communications Inc. (NYSE:VZ) and Philip Morris International Inc. (NYSE:PM) have a high yield of 4.30% and 4.43% respectively. Moreover, some value stocks like Wells Fargo & Co (NYSE:WFC) and AT&T Inc. (NYSE:T) have shown substantial earnings growth.

It is interesting to see how analysts are evaluating the stocks in the two groups of the large cap growth and value stocks. Since we wanted to eliminate all biased opinions, we have taken into account only recommendations from top analysts who have four or five star rating according to TipRanks, a financial accountability website that ranks experts (analysts and bloggers) according to their performance.

The tables below show the number of top analysts rating the stocks as a Buy, Hold or a Sell, and the percentage of a Buy rating for each stock.

Growth Stocks

Growth Stocks

Value Stocks

value stocks

Although the growth stocks group has shown a higher average percentage of Buy rating, 64.0% compared to 52.2% for the value stocks group, the difference is not significant enough to deduce that top analysts prefer growth stocks over value stocks nowadays. However, one fact is evident: much more top analysts are covering the growth stock group – on average 16 analysts for each growth stock compared to an average of 6 analysts for each value stock.

However, there is a substantial difference in the rating of some stocks between all analysts and top analysts according to TipRanks. In the case of Verizon, all five top analysts rate it as a Buy, while all analysts’ consensus is divided; eight analysts rate it as a Buy, three rate it as a Hold, and one analyst rates it as Sell.

value stocks VZ

In the case of Wells Fargo & Co (NYSE:WFC) six top analysts rate it as a Buy and only two top analysts rate it as a Hold, while considering all analyst there is more Hold ratings than Buy rating, eight and seven respectively.

Value Stocks WFC


In conclusion, the traditional division between growth stocks and value stocks is not unambiguously clear nowadays. Some growth stocks pay a rich dividend and some value stock have strong earnings prospects. As for analysts, more of them are covering the large cap growth stocks than large cap value stocks, and they are giving them higher ratings but not by a significant difference.

Source: Smarteranalyst

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