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Value investing will work if you can weed out the 'value traps,' Bank of America says

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People pass by the Salesforce Tower and Salesforce.com offices in New York City, March 7, 2019.
Brendan McDermid | Reuters

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Bank of America is all-in on downtrodden value investing, but the Wall Street firm is warning investors about value traps.

"We prefer Value to Growth for a multitude of reasons, spanning macro and micro, but watch out for traps," Bank of America equity and quant strategist Savita Subramanian told clients on Tuesday. 

While high flying growth stocks have led the major averages from the depths of the coronavirus recession, Bank of America said value investing is still alive. The valuation gap between expensive and cheap stocks is its widest in years, setting the stage for undervalued companies to catch up to the technology darlings, the firm believes.

"Traditional cyclical industries like Household Durables, Autos, Metals & Mining, Construction Materials, and Semiconductors screen as Good Value opportunities, backed by improving fundamentals as well as price momentum," said Subramanian.

But investors need to separate the quality value stocks from the duds. Here's how according to the firm:

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