Cheap value stocks in the S&P 500 are rocking like it's the 1990s. And some of the gains are downright impressive — even in a tough market.
Ten stocks in the S&P 500 Pure Value index, which only includes the cheapest stocks like Mosaic, Marathon Oil and Exxon Mobil, are already up more than 20% just this year, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. If that sounds like a remarkable start to the year, that's because it is. Such pure value stocks are off to their best start of a year since the S&P Dow Jones Indices started keeping records in the mid-1990s.
"Value (stocks are) outperforming growth by 9.5% year-to-date," said S&P Dow Jones Indices.
S&P 500 Growth Takes Over
The time was ripe for S&P 500 value stocks coming into the year. And they're paying off now — at least greatly curbing losses so far.
The SPDR Portfolio S&P 500 Value ETF is only down 3.2% this year so far. That's a solid performance in a year that the S&P 500 itself is down more than 9%. Meanwhile, the SPDR Portfolio S&P 500 Growth ETF, loaded up with high-priced technology firms now under pressure, is down nearly 15% this year.
Sectors help explain a big part of value stocks' big outperformance versus growth this year. Value stocks, generally those with the lowest price-to-book value ratios, are 5% overweight in the two top sectors of the market: energy and industrials, says S&P Dow Jones. Additionally, the pure value indexes are 3% underweight in the year's worst sector: communication services.
"Exposure to energy was an important driver not just for value but for all our factors indices in February," S&P Dow Jones said.
Picking the right S&P 500 value stocks is scoring you big gains, while everyone else loses money.
King Of S&P 500 Value Rally: Mosaic
If you're looking for the most impressive S&P 500 value stock this year, look no further than materials firm, Mosaic. The producer of fertilizer products has seen its shares rally more than 50% in 2022 so far. That makes it the No. 1 performer in the S&P 500 Pure Value index.
Interestingly, though, it's not a massive dividend payer like many of the top 10 performing value stocks. More than half the top-performing S&P 500 pure value stocks yield more than the S&P 500's 1.5%. But Mosaic, yielding a scant 0.8%, isn't one of them. But its draw is the value of its shares. The stock only trades for 2.2-times tangible book value. That's a massive discount next to growth stock darling Tesla, which trades for 29.2 times book, and Apple, which trades for nearly 38 times book.
And on top of a lower valuation, you still get growth with Mosaic. Analysts think the company will make $9.35 a share in 2022, up more than 85% from 2021.
Energy's Big Role In Value Rally
More top S&P 500 value stocks — half of the top 10 — belong to the energy sector than any other. And some energy value stock gains are head-turners.
Marathon Oil is the one to beat in the energy sector. It's up more than 43% just this year so far. Its dividend yield of 1.2% isn't all that impressive. But again, what investors are paying attention to is the sheer value. Marathon's shares trade for just 1.6 times tangible book value. And again, you're still getting growth. The company is expected to make $2.80 a share in 2022, up nearly 80% from 2021.
But the real trick comes from getting a big dividend on top of stellar gains. And that's what investors in Exxon Mobil are enjoying. The stock alone is up more than 36% this year. Add in the 4.3% dividend yield on top, and you're already looking at a total return north of 40% this year. And you're only paying two-times tangible book.
Still, some think the rush into S&P 500 value stocks is overplayed. "Growth stocks have been punished by the recent rotation into value, even though growth stocks are actually better positioned to withstand rising interest rates because they have strong cash flows and business models," said Julian Koski, chief investment officer at New Age Alpha.
Top S&P 500 Pure Value Stocks This Year
| Company | Symbol | Stock YTD % ch. | Sector | Dividend yield |
|---|---|---|---|---|
| Mosaic | 50.4% | Materials | 0.81% | |
| Marathon Oil | 43.1 | Energy | 1.22 | |
| Baker Hughes | 36.8 | Energy | 2.31 | |
| Exxon Mobil | 36.3 | Energy | 4.34 | |
| Chevron | 33.9 | Energy | 3.64 | |
| Kroger | 29.9 | Consumer Staples | 1.52 | |
| Organon | 26.8 | Health Care | 2.87 | |
| Archer-Daniels-Midland | 22.7 | Consumer Staples | 1.95 | |
| Marathon Petroleum | 20.9 | Energy | 3.00 | |
| Leidos Holdings | 20.8 | Industrials | 1.37 |
