GSY:CC - Growth Stocks vs. Value Stocks: Which Should You Choose?
2024-06-21 15:45:00 ET
Canadian investors are still wary about the current market situation. On the one hand, there are growth stocks that could bring serious benefits in the near term. However, perhaps value stocks are better if you’re a more conservative investor.
This is why today, we’re going to consider both. Depending on your portfolio and investing, let’s get down to which is better: growth stocks or value stocks?
Growth stocks
Growth stocks offer several benefits for investors, especially those with a long-term investment horizon. These stocks are typically companies that are expected to grow significantly faster than the overall market. Many growth companies reinvest their earnings back into the business to fuel further growth.
Also, growth companies often operate in innovative sectors or industries with significant potential, such as technology, healthcare, or renewable energy. These companies can become market leaders, providing a competitive advantage and long-term growth opportunities. Over time, the reinvested earnings and consistent growth can lead to compounding returns, where the investment’s growth accelerates as the returns generate more returns.
Growth stocks can also serve as a hedge against inflation, as their earnings and stock prices tend to increase faster than the rate of inflation. This can help preserve the purchasing power of an investor’s capital. Growth companies are often more adaptable and innovative, allowing them to quickly respond to changes in market conditions, consumer preferences, and technological advancements. Therefore, including growth stocks in a diversified portfolio can balance the risk and potential return, complementing more stable but slower-growing investments like bonds or dividend stocks.
Value stocks
While growth stocks can be great, they can also come with higher risks. Therefore, perhaps value stocks could be better. Value stocks are typically priced lower than their intrinsic value, providing an opportunity to buy shares at a discount. These stocks are often associated with established companies that have stable earnings, solid balance sheets, and a history of consistent performance.
Furthermore, many value stocks offer attractive dividend yields, providing investors with a regular income stream. Because value stocks are already priced at a discount, they may have less downside risk during market downturns. Over time, value stocks have the potential to provide substantial long-term gains as the market corrects its undervaluation.
That’s especially true as value investing is based on the principle that stock prices eventually revert to their mean or intrinsic value. This reversion can create opportunities for substantial gains when undervalued stocks return to fair value.
How about a growth-value stock?
Yes, they exist! And one that I would certainly consider these days is goeasy ( TSX:GSY ). goeasy stock offers non-prime leasing and lending services and has shown strong growth, with a 54.3% increase in earnings over the past year. It is forecasted to have an annual revenue growth of 32.7%, significantly outpacing the broader market. The stock is trading at 20% below its estimated fair value, making it an attractive option for value investors.
goeasy operates under the easyhome, easyfinancial, and LendCare brands, providing non-prime leasing and lending services to Canadian consumers. This niche market allows the company to capitalize on the growing demand for non-traditional financial services. Furthermore, high insider ownership (21.7%) aligns the interests of the company’s leadership with those of shareholders, suggesting confidence in the company’s future prospects.
The company boasts a high return on equity of 24.3%, indicating efficient use of shareholder funds to generate profits. This metric underscores goeasy’s operational efficiency and profitability. It also holds a solid dividend yield of 2.5%! So with shares climbing yet below fair value, it’s a strong choice on the TSX today.
The post Growth Stocks vs. Value Stocks: Which Should You Choose? appeared first on The Motley Fool Canada .
Fool contributor Amy Legate-Wolfe has positions in Goeasy. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .
2024