- So far, 2022 has been bad for growth stocks as investors flee to safety and value.
- If the economy begins to improve, these stocks could see a strong comeback.
- JPMorgan compiled a list of stocks with the best value relative to their growth potential.
The Federal Reserve's fight to tame inflation and normalize the monetary policies it introduced at the pandemic's start have sent investors fleeing from growth stocks into value stocks and even cash.
Year-to-date, the S&P 500 is down by about 18%, with growth stocks continuing to significantly underperform as the market looks for its bottom. An index of the fastest-growing S&P 500 companies was down by 18% as of Friday, while its value counterpart was down 6%.
Growth stocks outperformed for much of the past decade, when the Fed kept borrowing costs cheap to stimulate the economy. But now, following the Fed's shift, several of these high-growth stocks that have sold off are still extremely cheap relative to their potential, according to a September 1 note from JPMorgan.
"This correction has pushed some growth stocks to extreme dislocations," said a team of strategists led by Dubravko Lakos-Bujas. As an example, they noted that the fastest-growing stocks are trading at a record 9x price-to-earnings discount relative to the rest of the S&P 500.
If the tides turn and economic growth improves or the central bank stabilizes or reduces its interest rate hikes, the firm says investors should consider these stocks as part of a balanced portfolio.
Below is a list of 29 stocks from the S&P 500 that JPMorgan says are cheap but have strong growth potential. The so-called growth score is a combination of one-year and three-year growth in sales and free cash flow. The value score is a combination of the price-to-earnings ratio, price-to-sales ratio, and the firm's market capitalization to its book value.
The stocks are ranked starting with the highest average growth-at-reasonable-price rating (GARP).
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