{"id":847,"date":"2015-02-17T16:37:26","date_gmt":"2015-02-17T16:37:26","guid":{"rendered":"http:\/\/www.wallstreetandkstreet.com\/?p=847"},"modified":"2015-02-17T16:39:55","modified_gmt":"2015-02-17T16:39:55","slug":"growth-offers-the-best-value","status":"publish","type":"post","link":"https:\/\/www.wallstreetandkstreet.com\/?p=847","title":{"rendered":"Growth Offers the Best Value"},"content":{"rendered":"

In this week\u2019s Barron\u2019s<\/strong> Lawrence C. Strauss has an interesting article on the \u201cgrowth versus value\u201d debate. It is is a dumb concept invented by quantitative analysts and pension fund consultants that has little utility for real investors who actually understand the companies they own. A \u201cgrowth stock\u201d with an above average PE multiple can be a much better value<\/strong> than a slow-growing \u201cvalue stock\u201d with a low PE multiple, low price-to-book multiple, and high dividend yield. The keys are A) not to pay an excessive PE for growth and, B) make sure the company really will<\/strong> grow as fast as you expect. Item \u201cB\u201d is much harder than it looks. I recall writing thematic research reports where we asked each analyst for his or her best growth idea; looking at the names a few years later, many of them turned out to be duds. (If you don\u2019t believe me, take a look at a 2-year chart of 3D Systems.)<\/p>\n

The most useful insight to be found in Mr. Strauss\u2019 column is a quotation from Oakmark\u2019s Bill Nygren, who notes that today \u201cinvestors are overpaying for high yields, which usually implies slower growth, rather than overpaying for high growth.\u201d In other words, you are more likely to find good value among growth stocks that don\u2019t offer particularly high dividend yields.<\/p>\n

To test this hypothesis, I carried out a simplistic but nevertheless instructive analysis of the 30 stocks in Dow Jones Industrial Average. For each company I calculated:<\/p>\n