Have you ever got stuck while choosing between a fast-moving stock and a steady, underpriced one? The stock market is like an ice cream shop with endless flavors, you are prone to be confused and overwhelmed when you walk in. There are flashy growth stocks that soar high and guarantee high returns, whereas, value stocks help you shine over time. The two categories are on the opposite end of the spectrum with each having a dignified fan club. Confused about how to pick one? Let’s unravel the debate and find the highly suitable one for you.
If you are looking for the rockstars of the stock markets, then growth stocks are what you mean! Have you ever seen that one kid in your school who has all the fame and attention and wins everything? Growth stocks are that kid from school. These companies are at the prime of growth and reuse a large chunk of their profits to fuel further growth.
Growth stocks have a high return potential and can deliver you jaw-dropping profits. You are generally attracted to a growth stock if you are a trader who can take more risks for a promise of higher returns.
The price-to-earnings ratio of growth stocks is always valued at a sky-high amount. Traders pay for what the future of the company is and not what its present seems like.
You can easily identify growth companies from the dividends they pay. Such companies generally plow all their earnings back into the business which means there are little to no dividends attached to them. These are your go-to options if you are hunting for income.
If you see a stock that is pretty wild, you have spotted a growth stock. The prices of these stocks soar when the market is on a high, but when it crashes, they just crash as hard.
Growth stocks are the perfect choice for you if you have a higher risk tolerance. Are you looking for a little drama in your portfolio? Are you looking for long-term growth? Growth stocks are the perfect thing to have.
Looking for underappreciated gems in the market? Value stocks are the perfect choice for you that comprises of companies that have been overlooked by the market. Value stocks deliver when it matters the highest, like that genius sitting in a corner, ready to shine when you need them.
Compared to their intrinsic worth, value stocks are generally undervalued and come at a discounted price. With a low P/E ratio or price-to-book ratio, these stocks generally seem to be a bargain for you.
If you like trading in steady and mature companies, value stocks are just the perfect thing for you. These stocks have been around for a long time and are not chasing any kind of hypergrowth, making them steady and reliable.
If you are a trader who is looking for a steady income then these stocks are just what you need! You get regular dividends with these stocks, which means steady income.
Unlike their growth counterparts, value stocks are less volatile and don’t make any kind of headlines. However, they perform very well with time, making them a reliable choice.
Value stocks could be your thing if you are more into the ‘slow and steady wins the race’ kind of thing. Are you a conservative trader and looking to balance your portfolio with less risky options? Try value stocks and see your vision come true.
Let’s now look at a quick comparison between the two types of stocks.
As for focus, growth stocks have their focus set on future potential, whereas, value stocks focus on current undervaluation. The risk level in growth stocks is high, but in the case of value stocks is moderate to low. You get your dividends frequently paid to you for a steady income in value stocks, but growth stocks rarely pay you any dividends. These companies tend to reuse their profit to fuel more growth. The volatility of growth stocks is on the higher side, whereas, value stocks are stable with low volatility. If you are a risk-taker, growth stock is your perfect choice, but, as a conservative trader, go for value stocks any time!
Is there a need to choose between growth and value stocks? No, you don’t. You can easily mix your portfolio and own both value and growth stocks for a more balanced approach. Having both is like having a balanced diet, you get everything you need on your plate.
The mixing of growth and value stocks helps you to balance the risk that you generally face in stock markets. You can get both high returns and stability by mixing growth and value stocks in your portfolio.
During economic downturns, value stocks tend to outperform others, but growth stocks give you high profits when the market blooms. So, choosing both can be beneficial, isn’t it? Stay prepared for whatever the market throws at you by including both growth and value stocks in your portfolio.
If you are looking to pick the perfect growth stocks, you must look for companies and industries that have a high future growth potential. Check the revenue growth of these companies. If they are constantly smashing it, you must pick the stock instantly. Don’t fall for overhyped stocks that have unsustainable valuations.
In the case of value stocks, check the fundamentals of the company and use different metrics like P/E ratio and P/B ratio that help you spot bargains better. If the company is paying constant dividends, it is economically stable and instantly choose it.
Growth stocks and value stocks are two sides of the same coin. While value stocks have performed stably even in times of economic downturns, growth stocks have had their moments as well. Take your time, do your research, and pick the perfect stock based on your goal, risk-affinity and return expectations. Ace the stock market by balancing both growth and value stocks expertly!
