Earn Potential Profits in the Shift from Growth to Value

[TradeSmith Daily]( Earn Potential Profits in the Shift from Growth to Value Late last year, investors began to get concerned about accelerating inflation and the prospect of higher interest rates. Those fears hit home last week when the U.S. Consumer Price Index report showed that inflation surged higher again last month, up 7% from a year ago. That’s the biggest increase in prices in 40 years. The threat of inflation and higher interest rates also helped trigger a subtle shift in which type of stocks are performing best. For the past several years, growth stocks, led mainly by technology, beat the market handily. But last year, value stocks jumped into the driver’s seat as the new stock market leaders. And this shift may be just the beginning of a longer-term, profitable market trend. You should pay close attention to it. SentimenTrader, Bloomberg Investors began rotating out of expensive growth stocks last year, as you can see above, and into more reasonably priced value stocks. And so far this year, this rotation from growth to value has accelerated even more. In fact, since just Dec. 1, the S&P 500 Pure Value Index ETF (RPV) is up 12.6%, while its sibling the S&P 500 Pure Growth Index ETF (RPG) has taken a beating, down nearly 8%! RECOMMENDED LINK [Are You Ready for the 2022 Stock Market Crash?]( If you have any money in the markets right now, [you need to hear this crazy, but true story…]( When the stock market crashed in March 2020, most people just watched it in panic. But not Keith Kaplan. He sold most of his stocks right before the crash… and got back in near the bottom. This story is so crazy that Keith recently agreed to give an interview to tell the details. If you’re worried about the risk of another big market crash in 2022… [I urge you to click here and watch it… before it’s too late](. Historically, there are very good reasons to believe that this shift in favor of value will remain in place for some time. The gap may get much wider. And it has everything to do with interest rates and inflation. In the past, during periods when the Federal Reserve was raising interest rates, value stocks have outperformed just about every other style of investment, according to Bank of America Global Research. According to the research, during those periods when the Fed was hiking rates, triggering higher market volatility in the process, value stocks outperformed the S&P 500 by more than 7% annually. Value stocks typically outperform as rates move higher because they are less expensive compared to the market, and especially compared to growth stocks. It goes back to the proverb “a bird in the hand is worth two in the bush.” In this case, a dollar in profits today is worth more than the promise of a dollar in profits delivered tomorrow… or many years from now. It’s all about the time value of money. When interest rates are low, a dollar’s worth of growth-stock profits earned years from now may be worth waiting patiently for. But as interest rates rise, as they’re bound to do this year, future profits get discounted by higher interest rates. So those future profits are not worth as much to investors. That’s why investors turn to more reliable, current profits delivered by inexpensive value stocks. RECOMMENDED LINK [Hedge fund legend who bought Netflix at $7.78 says buy these 5 Metaverse stocks today]( Few understand what's happening, but the Metaverse is on the verge of disrupting the $85 trillion global economy. And Whitney Tilson reveals his #1 stock to play this trend for FREE. [Click Here]( But how do you define a value stock? Again, going back to past cycles of rising interest rates, research shows that your best bet is usually stocks that produce high levels of cash flow relative to the size of the company. In fact, stocks with a low enterprise value compared to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA, shorthand for cash flow) perform the best during Fed rate hike cycles, up 9% on average. And stocks with a low stock price compared to free cash flow are up 8.1% on average. Fortunately, you don’t have to crunch the numbers on hundreds of stocks to figure out the best value stocks in the market. Our TradeSmith tools can do it for you. If you’re a subscriber, simply go to the Invest tab on our website, click on Screener, then select +New Screener. That will take you to our exclusive stock Screener page. TradeSmith Finance Indicated by the green arrows shown above, I selected only stocks with a rating of Bullish or Strong Bullish. Under Health Status, I wanted only stocks in a healthy state, so I selected the Green Zone. I then checked the box for stocks in an uptrend. Finally, under TradeSmith Strategies, there are many categories to choose from here depending on your own preference, but I checked “Value.” Then, under Display & Sort Results, I chose to show the top 50 stocks sorted by Health Grade to get the best value stocks in our database. The screen resulted in 45 value stocks that also earn high marks by our proven TradeSmith rating system. Many of them are real estate stocks, which also offer you the bonus of attractive dividend yields in the 1.5% to 3% range. Also well represented are financial stocks, many with solid dividend yields as well, plus several health care and consumer stocks. One stock that caught my eye is biotech giant Gilead Sciences (GILD), a blue chip in health care with a $90 billion market cap. GILD has a Strong Bullish rating in our system. It triggered an entry signal last July and remains in the Green Zone in a healthy state, with a solid uptrend intact. GILD’s EV/EBITDA ratio looks like a bargain at just 8.95. Plus, GILD shares trade at just 12.3 times earnings, and the stock pays you a rich 3.9% dividend yield while you wait for the stock to climb higher. The switch from growth stocks to value stocks that’s underway looks like it has staying power. One way to potentially cash in on this shift is by using the TradeSmith Screener to scan for value stocks with upside potential. Enjoy your Tuesday, [Keith Kaplan]Keith Kaplan CEO, TradeSmith P.S. Entering the stock market without an exit strategy is a lot like going sailing without a life vest. You may think conditions look smooth ahead, but they can turn against you on a dime. And when they do, you’ll wish you had been prepared. TradeStops was designed to help you assess risk and plan your exits so you’re ready for whatever the market throws your way. [Click here to see how it can help protect your portfolio](. P.P.S. You’re invited to join our Product Education Specialist, Marina Stroud, for her free Beginner Bootcamp training session. Our first webinar of the week will offer a look at creating portfolios. We will cover the basics of importing your brokerage account, creating a watchlist, and importing a spreadsheet of securities. We will also discuss the various columns of information you can include when customizing your position views. This lesson covers the portfolio creation and management features found in TradeStops by TradeSmith, Trade360, and Crypto by TradeSmith. [Click here to register]( for today’s webinar. Best of TradeSmith The chart below represents the best-performing open positions over the last two years, as recommended by our software. [Download now on the Apple Store]( [Get It On Google Play]( [866.385.2076](tel:+866-385-2076) | support@tradesmith.com ©TradeSmith, LLC. All Rights Reserved. You may not reproduce, modify, copy, sell, publish, distribute, display or otherwise use any portion of the content without the prior written consent of TradeSmith. TradeSmith is not registered as an investment adviser and operates under the publishers’ exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith’s content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. There are risks inherent in investing and past investment performance is not indicative of future results. TradeSmith P.O. Box 3039 Spring Hill, FL 34611 [Terms of Use]( [Privacy Policy]( To unsubscribe or change your email preferences, please [click here](. [tradesmith logo]