×

Trader Talk: Value versus growth is the big investment debate for 2016

NYSE Trader looking a screens
Spencer Platt | Getty Images

Don't pooh-pooh this buy-the-losers-into-the-end-of-the-year trick: With many Energy and Material stocks down 20 percent or more, it makes perfect sense to be buying them now, in a seasonally strong period of the year, with tax-loss selling abating, and with traders looking for a few percentage points gain to end the year on a positive note.

I repeat: don't laugh at this strategy. I know guys that are suddenly very long the Alcoa's and Exxon's of the world as a "Santa Claus rally" trade, because a 5 to 10 percent rally in the next few days could make the difference between being in the green — or in the red — for the year.

On a longer-term level, Value versus Growth for 2016 is the big investment debate on trading desks right now.

The iShares S&P500 Value ETF (IVE), down 4 percent this year, is up 1.3 percent today, more than twice the performance of the iShares S&P 500 Growth ETF, which is up 4.7% year to date.

Many Growth names are being sold today. Nike is the outstanding example, up 30 percent or so this year, being sold on heavy volume today, despite a strong earnings report. It's not just Nike — big 2015 winners like Activision , Facebook , and Priceline are all down today.

The biggest losers (all Value) this year: Freeport McMoran, Williams, Southwest Energy, Range Resources, Devon — all down roughly 50 percent or so on the year...are the biggest gainers today, all up 10 percent or more today

What's the difference? Growth is traditionally associated with companies that are regularly growing earnings (duh).

Value is a bit trickier to define. It's usually associated with flat or declining earnings growth, a higher dividend yield (often because prices are down), and low price-to-book ratio and/or a low price-to-earnings ratio.

Traditionally, Value is associated with consumer names like Campbell Soup and Kimberly-Clark . But for 2015, Value was most associated with Energy and Materials. But it also dragged in regional banks like Huntington Bancshares and Fifth Third. And even many retailers like Kohls and Wal-Mart.

It's easy to argue for a short-term pop in Energy and Materials. Making a shot at Value as a strategy outperformer for 2016 is a tougher sell.

Here's why: For Value to work, several things would have to go right:

1) Oil rises, even if modestly;

2) The global economy expands, even if modestly;

3) The Fed is very slow on its interest rate hikes.

Doesn't sound like much, but that's a fairly tall order. The consensus is that we get another year of below-trend growth and that oil will struggle to rise, at least in the first half of the year.

So which wins long-term, Value or Growth? This is an old, old debate. Investment firm Gerstein Fisher recently published a paper noting that there have been long periods of dominance between the two:

July 1926 to 1944: Growth wins

1945 to 1962: Value wins

1963 to 1980: Value wins

1981 to 1998: Value wins

1999 to July 2015: Growth wins

Over much shorter time periods, however, it can be a bit of a coin toss. But when you have years like 2015 — with Energy down 22 percent and Materials down 9 percent — it is not a surprise that this debate is a little more vigorous than usual.

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

Wall Street