U.S. value stocks offer opportunities for bargain hunters, says BofA’s Subramanian

By Suzanne McGee

(Reuters) – Value stocks offer some of the most attractive valuations in the U.S. equity market, having lagged their growth-oriented counterparts significantly this year, Bank of America quantitative and equity strategist Savita Subramanian said on Wednesday. America Global Research.

“These companies are overlooked and trading at very low multiples” at present, but offer opportunities to buy high-quality stocks at a discount, Subramanian told attendees at Morningstar.

In a keynote speech, she said that in what she sees as a generally pro-equity market and economic environment, large-cap value stocks are the segment “where I have the most conviction.”

Value stocks, typically shares of companies that are relatively inexpensive by metrics like book value or price-to-earnings ratio, have been stagnant this year in a market that has been driven by big gains in big tech names like Nvidia. The S&P 500 Value Index is up about 4.5% year to date, compared to a rise of more than 23.5% for the S&P 500 Growth Index.

Subramanian says the underperformance of value stocks has made them more attractively priced relative to their growth counterparts. The S&P 500 Growth Index trades at 28.3 times forward earnings, while the S&P 500 Value Index has a forward P/E of 15.8, according to LSEG Datastream.

Among the sectors Subramanian likes is energy, where she says companies have become more disciplined about production despite rising commodity prices.

Subrmamanian also believes that the dividends offered by value stocks – which are generally higher than those offered by growth stocks – will make them attractive to investors. It expects dividend payout rates to grow significantly over the coming decade.

(Reporting by Suzanne McGee in Providence, Rhode Island; editing by Ira Iosebashvili and Matthew Lewis)