Tuesday, July 25th, 2006
Growth stocks badly mispriced
At the start of 2006 a legion of pundits were saying it was finally time for growth stocks to make a comeback after six long years of being outperformed by value. But the recent correction has sent traditional growth sectors such as technology spiralling down. The Financial Times notes that the Russell 1000 Value Index has gained almost 7 per cent this year, while the corresponding growth index is down 3.2 per cent.
Many now believe that talking up the return of growth was simply a bad call. But some are persisting.
The FT cites Thomas Galvin, a growth fund manager for US Trust, who says growth stocks are now badly mispriced.
Here’s Galvin’s evidence:
1. The average sales multiple of growth stocks is 43 per cent greater than value stocks. That compares with an average of 102 per cent since 1987
2. The premium of the Russell growth index to the Russell value index is at its lowest ever
3. Growth stocks are appearing in value managers portfolios
Galvin has been talking up growth for some time now as can be seen in this paper he wrote in 2005.
Word Count: 182. This entry was posted on Tuesday, July 25th, 2006 at 7:34 am and is filed under Value Versus Growth. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
