US value stocks offer opportunities for bargain hunters, says BofA CEO Subramanian

By Suzanne McGee

(Reuters) – Value stocks offer some of the most attractive valuations in the U.S. stock market after significantly lagging their growth-oriented counterparts this year, Savita Subramanian, equity and quantitative strategist at Bank of America Global Research, said on Wednesday.

“These companies are neglected and currently trade at very low multiples,” but they offer an opportunity to buy high-quality stocks at a discount, Subramanian told attendees at Morningstar’s annual investment conference.

In a keynote speech, she said that in what she sees as a generally favorable market and economic environment for equities, she sees large-cap value as the segment “in which I have the highest conviction.”

Value stocks – typically stocks of companies that are relatively cheap based on metrics such as book value or price-to-earnings ratios – have struggled this year in a market led by rapid price increases in big technology companies such as Nvidia. The S&P 500 value index is up about 4.5 percent since the beginning of the year, compared with a rise of more than 23.5 percent in the S&P 500 growth index.

Subramanian argues that the underperformance of value stocks has made them more attractive relative to their growth rivals. The S&P 500 growth index trades at 28.3 times forward earnings, according to LSEG Datastream, while the S&P 500 value index has a forward P/E of 15.8.

One of the sectors that Subramanian values ​​is the energy sector. She says that companies there have become more disciplined in terms of their production despite the increase in commodity prices.

Subrmamanian also believes that value stocks’ dividend payouts – which are typically higher than those of growth stocks – will make them attractive to investors. She expects significant growth in dividend payout rates over the next decade.

(Reporting by Suzanne McGee in Providence, Rhode Island; Editing by Ira Iosebashvili and Matthew Lewis)