Growth investing is a matter of expectations. Growth stocks seldom seem cheap. But a growth investor reasons that what appears precious at 25 times the current year's earnings will look cheap at today's price a year or two from now. Value stocks are underpriced bargains. They are out of vogue, overlooked, disliked, cheap stocks that investors, institutions and analysts have given up on.
Value stocks are plentiful in cyclical industries, such as metals, and in financials, such as banks.
The easiest way to tell growth and value apart is to think in terms of greater than and less than. Growth stocks have rates of earnings growth greater than that of the norm. They also have price-earnings ratios that are greater than average and dividend yields that are less than the norm. The value investor's job is to distinguish beaten-down stocks with bright prospects from those that richly deserve ignominy. The Kiplinger Washington Editors, Inc.