“ Over the course of a fund manager ’ s career , we see all stocks at all prices : growth stocks becoming value , and value becoming growth ,” says Simon Adler , co-manager of the Schroder Global Recovery fund . “ To think a company will be a growth or value stock forever is absolutely not the way it works .” There are many reasons why a previously out-of-favour company can reclassify as a growth stock : an improvement in economic growth , a new management team that turns the business around , a takeover by a rival , or even a realisation that things just weren ’ t as bad as originally thought . Investor sentiment can also play a role .
Richard de Lisle , manager of
VT De Lisle America , notes consumer staples stocks in the S & P 500 Value index such as Procter & Gamble and Johnson & Johnson have recently traded at about 28x trailing earnings . This is higher than the market average of 22x , and is more akin to a growth stock such as Apple . “ These should be value stocks trading at less than the market , but investors are so scared at the moment that they pay a high rating for the guarantee of straightline growth , which is what they think they get with consumer staples . “ As a result , they bid up these stocks to a premium , even though they know their earnings can ’ t keep up in the long-term ,” he explains .
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