Value stocks are dead, right? No way, not for me!

Since 2009, value stocks have steeply underperformed growth shares. But all winning streaks must end — and I see incredible value in UK stocks today.

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I’ve been a private investor for over 37 years, starting out soon after turning 18. Over the years, my strategy has evolved from my early, near-random approach to a precisely honed plan. My goal today is simple: buying cheap value stocks for dividend income, plus growth shares for future capital gains.

Going for growth

After the global financial crisis of 2007-09, value stocks fell out of favour. Investors much preferred the lure of go-go growth shares, particularly US mega-cap tech shares. As a result, the US stock market has outperformed the rest of the world in 12 of the past 13 years.

Fortunately, my wife and I were able to ride this wave, thanks to outsized exposure to US stocks. That’s good news, because the US S&P 500 index is up 55.6% over the past five years, whereas the UK FTSE 100 index is actually down 2.6% over five years (both excluding dividends).

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Value stocks versus growth shares

Of course, the past is an imperfect guide to the future, especially where financial markets are concerned. But I suspect that buying value stocks (over growth shares) today might produce superior returns in the years ahead.

To illustrate my point, here are the basic fundamentals of the main US and UK market indexes:

IndexEarnings multipleEarnings yieldDividend yieldDividend coverFall from 52-week high
S&P 50020.4x4.9%1.5%3.2x3.5%
FTSE 10010.6x9.4%4.1%2.3x8.5%

From these basics, it appears that the S&P 500 is roughly twice as expensive as the Footsie. Furthermore, the UK index offers almost three times the dividend yield of its American counterpart.

In addition, the FTSE 100 has lost close to 9% of its value since its all-time high of 16 February. Meanwhile, the S&P 500 is within 4% of its 2023 high of 27 July.

Never bet against America

Warren Buffett — my value-investing hero — has repeatedly warned investors to “never bet against America“. Given the Oracle of Omaha’s track record over the past six decades, I’m not one to ignore his wise words.

Therefore, my family portfolio is evolving, while largely consisting of two main ‘bets’. The first is a heavy weighting to US and global stocks, plus six individual holdings in US mega-cap stocks. Hence, I would guess that upwards of 50% of my family’s assets is tied to US success in some way.

My second bet is much more staid and perhaps even boring. My wife and I are overweight in FTSE 100 tracker funds, because the Footsie is packed with value stocks. In addition, we recently bought a slew of cheap UK value shares, so as to produce market-beating dividend income in future.

Value investing is not dead

Summing up, I remain absolutely convinced that value investing isn’t dead. Indeed, by buying cheap UK shares now, I expect to enjoy high and rising passive income as I age. Meanwhile, my wife and I have a hefty stake in the future of America, because we’d be crazy not to, right?

In short, for me, the choice isn’t value stocks or growth shares, it’s value and growth combined. And I’m perfectly happy to hedge my bets by sitting on the fence in this manner!

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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