{"id":13674,"date":"2025-03-04T15:54:43","date_gmt":"2025-03-04T15:54:43","guid":{"rendered":"https:\/\/zacksim.com\/blog\/?p=13674"},"modified":"2025-03-04T15:54:44","modified_gmt":"2025-03-04T15:54:44","slug":"are-you-overexposed-to-growth-stocks","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/are-you-overexposed-to-growth-stocks\/","title":{"rendered":"Are You Overexposed To Growth Stocks?"},"content":{"rendered":"\n

Don\u2019t Forget About Value Stocks<\/strong><\/p>\n\n\n\n

Most investors are aware of the outsized impact growth stocks have had on total returns in the U.S. stock market, at least for the past couple of years. In 2024, the mega-cap technology companies often referred to as AI \u201chyper-scalers\u201d accounted for 41% of the S&P 500\u2019s total return. And perhaps not surprisingly, the two best performing sectors last year were Communications Services and Technology, where many growth stocks can be found.<\/p>\n\n\n\n

Growth stocks have no doubt done well. But there is also a narrative that \u2018growth\u2019 is the only category that matters, especially given the view that we could be in the early stages of an AI-driven economic transformation.1<\/sup><\/p>\n\n\n\n

I\u2019m not writing to say this is wrong, or that growth stocks\u2019 momentum is coming to an end soon. My goal in this week\u2019s column is to remind investors that a pure growth mindset can introduce risk in an investment portfolio\u2014whether it\u2019s from over-allocating to growth stocks or underweighting other attractive categories, like value stocks.<\/p>\n\n\n\n

Download Our Insights to Help You Strategize for What\u2019s Ahead<\/a><\/span><\/strong><\/p>\n\n\n\n

Growth stocks have led the way, but with AI-driven shifts and economic uncertainty, it’s time to explore deeper opportunities.<\/p>\n\n\n\n

Unlock your portfolio\u2019s potential\u2014download our exclusive Stock Market Outlook Report2<\/sup><\/a><\/span><\/strong> now to discover the resilient strategies that can drive your next wave of market gains. Inside, you\u2019ll find:<\/p>\n\n\n\n

\u2022 Asset allocation guidelines for today\u2019s market environment.
\u2022 Expert forecasts for inflation, rates, and economic trends.
\u2022 Industry tables and rankings to help you spot opportunities.
\u2022 Buy-side and sell-side consensus insights at a glance.
\u2022 And much more!<\/p>\n\n\n\n

If you have $500,000 or more to invest and want to take charge of your financial journey, click the link below to get your free report today!<\/p>\n\n\n\n

IT\u2019S FREE. Download our Exclusive Zacks Stock Market Outlook Report2<\/sup><\/a><\/span><\/strong><\/p>\n\n\n\n

2024 offers a useful case study for the argument I\u2019m making. As mentioned, Technology stocks led the way. But we also saw improving performance outside of the Big Tech category, with the median stock in the index returning +12% and leadership changing hands throughout the year. In the second half of the year specifically, value stocks and growth stocks performed roughly in-line with each other, as value staged a strong rally starting in July. A diversified portfolio could have captured this upside with less overall risk.<\/p>\n\n\n\n

At Zacks Investment Management, we diversify portfolios across style, size, and sector to align a client\u2019s asset allocation with their unique set of goals and needs. That means we generally refrain from over-allocating to any one category, such as growth. Investors who simply own an index may think they\u2019re getting this same level of diversification, but they may actually have greater exposure to growth stocks than they\u2019re aware of. Case-in-point: growth stocks made up over 35% of the S&P 500 Index as of the end of last year, which is substantially above the historical average of 24%.<\/p>\n\n\n\n

Consider that owning the S&P 500 today could mean over-allocating to growth stocks and under-allocating to value stocks, which means having a portfolio overweight to stocks that trade at high multiples. Value stocks, by contrast, trade at relatively attractive levels today, and are far below their long-term median valuation. I estimate that value stocks would need to rise by some 40% just to get back to this historical valuation.<\/p>\n\n\n\n

While past performance doesn\u2019t guarantee future results, it\u2019s noteworthy that the last time the valuation disparity between the Russell Growth and Russell Value indexes was as extreme\u2014back in December 2000\u2014value stocks went on to substantially outperform growth stocks over the following one, three, and five years. High-growth stock prices might eventually steer investors toward more reasonably priced options and expand the market focus beyond just the largest firms.<\/p>\n\n\n\n

There\u2019s also an earnings case for looking beyond growth. In aggregate, pretax corporate profit margins are near record levels, and the \u201cnon-Magnificent Seven\u201d stocks in the S&P 500 are poised to see double-digit earnings growth for the first time in four years. While the Technology sector is expected to see strong double-digit earnings growth as well, Tech earnings growth is poised to decelerate in 2025 while other sectors in the S&P 500 could see accelerating earnings growth. Investors tend to prefer the latter.<\/p>\n\n\n\n

Bottom Line for Investors<\/strong><\/p>\n\n\n\n

Growth stocks have undeniably driven recent market momentum, and have commanded leadership over value for much of the past decade. But over-committing to the growth theme not only increases risk in a portfolio, in my view, it also misses out on other areas of the market that trade at attractive valuations and could see accelerating earnings growth this year.<\/p>\n\n\n\n

Value stocks are one such category. Value could give investors solid earnings growth at good prices, which could be coveted in a year when we may see elevated geopolitical and trade policy uncertainties. Value stocks outperformed growth significantly during 2022\u2019s downturn, and could again serve as a stabilizing force during any volatile patches that surface in the new year.<\/p>\n\n\n\n

Growth stocks may grab the headlines, but emerging opportunities in other sectors are equally compelling. As market valuations shift and uncertainty rises, investors who broaden their focus today can better position themselves for tomorrow’s gains.<\/p>\n\n\n\n

Our Stock Market Outlook Report3<\/sup><\/a><\/span><\/strong> equips you with the insights necessary to navigate the complexities of market shifts. Inside, you\u2019ll find:<\/p>\n\n\n\n

\u2022 Current asset allocation guidelines
\u2022 Zacks forecasts for the months ahead
\u2022 Zacks Rank industry tables
\u2022 Buy-side and sell-side consensus at a glance
\u2022 And much more!<\/p>\n\n\n\n

If you have $500,000 or more to invest and want to learn more about these forecasts, click the link below to get your free report today!<\/p>\n\n\n\n

FREE Download \u2013 Zacks’ Stock Market Outlook Report3<\/sup><\/a><\/span><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

A growth-heavy portfolio may be riskier than you think. See why value stocks could offer balance in 2025.<\/p>\n","protected":false},"author":3,"featured_media":13553,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-13674","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13674","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=13674"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13674\/revisions"}],"predecessor-version":[{"id":13675,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13674\/revisions\/13675"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media\/13553"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=13674"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=13674"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=13674"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}