Shares should con­tinue be­ing in vogue on im­prov­ing earn­ings out­look, says an­a­lyst

New Straits Times - - Business -


DON’T look for the out­per­for­mance of growth stocks to fade any time soon, as long as cor­po­rate earn­ings con­tinue to im­prove and hopes re­main for stronger eco­nomic growth.

The Rus­sell 1000 Growth in­dex, which tracks such shares, is up 10.9 per cent so far this year, out­pac­ing the United States bench­mark S&P 500 stock in­dex’s 6.6 per cent rise and the 2.8 per cent ad­vance of the Rus­sell 1000 Value in­dex.

And it’s not just a US phe­nom­e­non. Growth stocks — whose prof­its are ex­pected to grow at a faster pace than the broader mar­ket — are also out­per­form­ing their value coun­ter­parts in Asia and Europe.

Still, the ap­peal of riskier stocks per­ceived as bet­ter po­si­tioned to ride an ac­cel­er­at­ing global earn­ings tail­wind, as op­posed to those with a greater cush­ion of safety, is nowhere as far ahead as it is on Wall Street.

In the US, an im­prov­ing out­look for cor­po­rate earn­ings should help keep growth names in vogue, ac­cord­ing to John Praveen, chief in­vest­ment strate­gist at Pru­den­tial In­ter­na­tional In­vest­ments Ad­vis­ers LLC in Ne­wark, New Jersey.

The av­er­age es­ti­mate of an­a­lysts for earn­ings per share growth this year of S&P 500 com­pa­nies has risen to 11.3 per cent from 10.9 per cent at the start of the month, Thom­son Reuters data showed, a trend that should con­tinue to blunt con­cerns about lofty growth val­u­a­tions.

“When you have an earn­ings re­cov­ery, growth stocks will out­per­form.

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