Value Stocks Have Outperformed Growth Stocks

As everyone knows, stocks have done wonderfully during the last few years, but which stocks have done best?

Value stocks, according to a study by the newsletter Dow Theory Forecasts.

Those are stocks selling at what investors believe to be bargain prices. They contrast with growth stocks, which investors expect to produce above-average earnings growth.

The easiest way to differentiate between value and growth stocks is to look at price-to-earnings ratios - a stock’s price divided by its annual earnings per share. Value stocks tend to have low P/E ratios, while growth stocks have high ones.

Dow Theory Forecasts looked at the performance through June 1997 of 436 stocks that had been in the Standard & Poor’s 500 index since November 1994. During that period, the index rose by 85.3 percent.

The 11 stocks with P/E ratios below 7 rose by an average of 228.3 percent, while the 40 stocks with P/Es between 7 and 10 rose 100.4 percent. The stocks with P/Es above 10 lagged the index as a whole. The worst performance was from stocks with P/Es above 30, which gained an average of 57.9 percent.

Time to refocus on stocks

Investors can be excused for letting their attention wander during summer vacation, but now that the school year has begun and most people are back at work, it’s time to refocus and try to figure what’s next for stocks.

The short answer: No one knows.

But that doesn’t stop the pros from picking over the past for guidance on the future. Here are a couple of tidbits from the Hirsch Organization, an Old Tappan, N.J., firm that publishes the Smart Money newsletter and an annual almanac full of intriguing statistics on stock-market performance:

September is usually the worst month for stocks, and they are especially bad the year after a presidential election. The Dow has dropped in eight of the 11 post-election Septembers since 1953.

Since 1960, September has served as a reverse barometer. When stocks did poorly in September, they tended to do well in the fourth quarter and vice versa. So far, this September has been pretty flat.

A good July has often been followed by a market dip in the second half of the year, usually between mid-October and mid-December. From 1951 through this July, there were 14 Julys in which the Dow gained 3.5 percent or more. In those years, the Dow suffered second-half drops averaging 7.4 percent.

That’s not necessarily bad news. As the Hirsch analysis notes, there was often a subsequent rebound that made the dip nothing more than a buying opportunity.

This July, the Dow soared 7.2 percent, only to fall 7 percent in the second week of August. Hirsch thinks there still may be another second-half dip to come.

Workers use Web to manage 401(k)s

The Internet is quickly becoming a preferred channel for American retirement savers to manage their 401(k) accounts.

In its first year of providing online services for retirement account customers, Fidelity Investments says 1,000 U.S. companies and organizations are offering more than 2 million employees the option of the Web to manage their accounts.

Fidelity says 10,000 connections are made each day by retirement plan participants viewing their electronic statements through the online channel.

Retirement savers use Fidelity’s NetBenefits service to check account balances, stock quotes and asset allocation. Additionally, they review 90-day transaction histories and fund performance, get information on loans and withdrawals, and conduct online investment exchanges.