Goldman believes the time is right for value to beat growth stocks and likes these names the best

Published Wed, Sep 7 20221:45 PM EDT

In the epic battle between value and growth stocks, Goldman Sachs believes it's finally time for value to win out. It's been a volatile year for stocks as the Federal Reserve aggressively hikes rates to tame surging prices and recession fears mount. Investors looking for opportunity beyond this market turmoil may want to consider betting on value stocks ahead, analyst Cormac Conners said in a note to clients Tuesday. Although value will only slightly outperform over the next year, there are several reasons why the bank believes investors should put money in this area, Conners said. Growth stocks are currently trading at a premium and the wide valuation spread between the most and least expensive names creates a ripe opportunity for value to outperform over the following three years — if history is any guide, he wrote. "Current relative valuations within the equity market imply the Value factor will generate strong returns over the medium term," Conners said. "The historically large magnitude of the current valuation gap between the cheapest and most expensive stocks suggests robust medium-term returns for value." Data also suggests that value tends to outperform growth near the beginning of a recession and following peaks in inflation or the end of a hiking cycle, he added. These issues stand at the forefront of investors' minds as recession fears grow amid the central bank's aggressive rate-hiking cycle. Goldman Sachs economists currently peg the probability of a U.S. recession within the next two years at 48%. Seeking opportunities Amid this backdrop, the bank outlined a basket of 25 stocks for investors on the lookout for value opportunities. These are names with a median price-earnings ratio of 9 times that Goldman identifies as value stocks even though value-focused mutual funds are underweight or have avoided buying them just yet. Once they do start buying in, the bank expects shares to rise. Here are some of the value names Goldman identified: Several consumer-focused and transportation names made Goldman's list, including United Airlines and Ford Motor . Last month, value investor Bill Miller revealed a stake in United Airlines . In July, the airline reported its first quarterly profit since the start of the pandemic , without federal aid assistance. CVS Health was another value stock the bank identified that's underweighted by mutual funds. The health-care stock is down more than 2% this year and sits more than 9% off its 52-week high. CVS announced a deal to buy Signify Health for roughly $8 billion earlier this week. On the health-care front, Pfizer was the most underweighted stock in the basket — by 81 basis points. Shares of the pharmaceutical company have plummeted about 22% this year. As oil prices skyrocketed this year, energy stocks have outperformed the broader market. The sector is up about 40% this year, while the S & P 500 has dropped roughly 17%. Valero Energy 's stock has surged about 49% since the year began and Goldman Sachs expects further growth ahead. The average value-oriented fund is underweight the stock by 5 basis points. A recent screen from CNBC Pro placed Valero among a slew of companies that are loved by analysts and look relatively cheaper after reporting earnings. AT & T, Cisco Systems , Micron Technology and Dow Inc also made Goldman's list. — CNBC's Michael Bloom contributed to this story.