Bank of America predicts cheap stocks will outperform growth peers

In the context of the stock market, Bank of America has recently signaled a shift towards cheap value stocks over their expensive growth counterparts, based on historical trends and current market analysis. On February 16, 2025, Savita Subramanian, head of U.S. equity and quantitative strategy at the bank, indicated that traditionally, cheap stocks have outperformed expensive ones, especially since 1986, where a significant annual return differential was observed. However, preceding a market peak, cheap stocks often see a drop in performance compared to their pricier peers, highlighting the recent general underperformance of low price-to-earnings stocks. Yet, Bank of America posits that the current market has reached an inflection point favoring value stocks, marking the end of a trend that has negatively affected cheaper stocks' performance over the past six months. Subramanian's analysis suggests that a Recovery regime will benefit value stocks, possibly reversing the dominance of growth stocks seen in past years like 1999 and 2000. The publication provided a list of buy-rated stocks characterized by low price-to-forward earnings ratios, indicating renewed investor interest in value investments. One notable stock mentioned is that of a solar energy equipment supplier, which saw a modest gain of approximately 1% in 2024, with analysts adjusting future earnings projections due to improved sales outlooks. The report also highlighted other stocks undergoing positive changes and potential growth outcomes, aligning with the bank's overall bullish sentiment towards value stocks as the market transitions.