10 ‘Value’ Stocks That Are Set to Grow Fast Through 2026

By Philip van Doorn

A narrowly focused value stock screen highlights stocks that are cheap to trade relative to book value, sales, and earnings, but that are also expected to grow sales per share quickly

Investors often fall into growth and value camps. Growth has been the big winner in recent years, led by Big Tech. Value strategies have lagged the S&P 500 for years (driven by its heavy weight in growth stocks), but they can still be attractive to investors.

Why Now Is Worth Considering Value? One reason is that the S&P 500 SPX is in a period of high concentration, with three companies—Apple Inc. (AAPL), Microsoft Corp. (MSFT) and Nvidia Corp. (NVDA)—making up 19% of the $554 billion SPDR S&P 500 ETF Trust SPY.

The S&P 500 is weighted by market capitalization. That rewards success and can be lucrative in a long bull market. But Nvidia shed light on concentration risk as its shares fell 11% in the two trading sessions through Wednesday.

A recent study by MFS Investment Management of a century of price volatility in the U.S. stock market shows that we have been in a period of increasing concentration for almost 18 years. After the last four concentration peaks, a capitalization-weighted equity portfolio would have underperformed other strategies, and a growth portfolio would have underperformed a value portfolio.

Another reason to consider investing in value stocks is that these companies can benefit from falling borrowing costs as interest rates fall.

What are value stocks?

The S&P 500 Index is maintained by S&P Dow Jones Indices, a unit of S&P Global. The index is divided into value and growth subsets. The S&P 500 Value Index XX:SP500PV methodology narrows the entire S&P 500 Index to approximately two-thirds of companies, based on the combined performance of price-to-earnings ratios, price-to-book ratios, and price-to-sales ratios.

The S&P 500 Growth Index VSPGX consists of 230 stocks that are analyzed for revenue and earnings growth over the past three years, as well as for price momentum compared to the previous year when the indexes are reconstructed every December.

Both the S&P 500 Value and S&P 500 Growth indices are weighted by market capitalization

Given the large number of stocks in each of the S&P 500 Value and Growth indexes, there are a lot of companies in both indexes.

S&P has released this guide to its value index methodology, explaining how the three approaches to selecting value stocks work and that the S&P 500 Value Index has the lowest “relative exposure to the value factor.” The index is tracked by several exchange-traded funds, including the iShares S&P 500 Value ETF IVE, SPDR Portfolio S&P 500 Value ETF SPYV and Vanguard S&P 500 Value ETF VOOV.

Here are two narrower approaches to S&P indexing value stocks within the S&P 500:

The S&P 500 Pure Value Index XX:SP500PV is comprised of 95 stocks weighted according to the index provider’s valuation results. The number of stocks in this index will change when it is reconstructed and rebalanced annually in December. This avoids capitalization weighting and there is no overlap — these stocks are also not included in the S&P Growth Index. S&P claims that this index has a medium level of exposure to value factors. This index is tracked by the Invesco S&P 500 Pure Value ETF RPV. The S&P 500 Enhanced Value Index has the highest level of exposure to value factors, according to S&P. It is composed of 100 stocks using a modified weighting scheme, multiplying the S&P Value score for each company by its market capitalization. This index is reconstructed and rebalanced twice a year, in June and December. It is tracked by Invesco S&P 500 Enhanced Value ETF SPVU.

S&P 500 Enhanced Value Index Study

Over the 10 years to Wednesday, the SPVU’s total return, including reinvested dividends, was 195.5%, while the RPV’s return was 160.6%.

So we analyzed the components of the S&P 500 Enhanced Value Index to see which 10 companies should post the highest compound annual growth rates (CAGR) for earnings per share between 2024 and 2026. Here they are, followed by an explanation of the data:

   Company                                  Ticker   Estimated sales per share CAGR through 2026  Price/ book value  Trailing P/E  Forward P/E  Trailing price/ sales  Forward price/ sales 
   Diamondback Energy Inc.                   FANG                                          33.6%                1.7           9.8          9.3                    3.6                   2.5 
   Arch Capital Group Ltd.                   ACGL                                          17.3%                2.1          12.8         12.6                    2.8                   2.4 
   Universal Health Services Inc. Class B    UHS                                           17.0%                2.4          17.0         14.0                    0.9                   0.9 
   Cigna Group                                CI                                           15.9%                2.4          13.4         11.9                    0.5                   0.4 
   Principal Financial Group Inc.            PFG                                           13.9%                1.4          11.4         10.0                    1.2                   1.1 
   McKesson Corp.                            MKC                                           13.3%                N/A          19.4         16.9                    0.2                   0.2 
   Everest Group Ltd.                         EG                                           12.5%                1.2           6.2          5.9                    1.0                   0.9 
   General Motors Co.                         GM                                           12.3%                0.8           5.3          5.0                    0.3                   0.3 
   Molina Healthcare Inc.                    MOH                                           11.3%                3.8          14.6         12.9                    0.5                   0.5 
   PulteGroup Inc.                           PHM                                            9.9%                2.4          10.0          9.5                    1.6                   1.5 
                                                                                                                                                                            Source: FactSet

We used per share numbers rather than raw revenue numbers to account for expected changes in the number of shares outstanding. If a company issues common stock to raise money, the ownership position of its common shareholders is diluted, which means that sales and earnings per share fall. If a company buys back more shares than it issues, the number of shares outstanding falls and the positions per share rise.

For expected CAGR, consensus estimates from analysts surveyed by FactSet were used, adjusted by the data provider for calendar years where necessary because some companies’ fiscal years do not coincide with the calendar years.

The index was last recreated in June, using then-current P/E and price-to-sales ratios. We show the current P/E ratio based on Wednesday’s closing prices and earnings per share over the past 12 months, as reported by the FactSet calendar, as well as the P/E ratio based on consensus estimates for the next 12 months. We used the same approach to show the two valuation metrics based on sales per share.

To put this group in perspective, the overall S&P 500 Index is expected to grow at a weighted annual rate of 5.7% between 2024 and 2026.

In terms of valuation, the projected P/E for the entire S&P 500 Index is 20.9, while the projected P/E for the iShares S&P 500 Value ETF is 16.4.

Leaving the 10 stocks in the same order, here is a summary of the opinions of analysts surveyed by FactSet:

   Company                                  Ticker   Share "buy" ratings  Share neutral ratings  Share "sell" ratings  Sept. 4 price  Consensus price target  Implied 12-month upside potential 
   Diamondback Energy Inc.                   FANG                    72%                    28%                    0%        $184.28                 $225.96                                23% 
   Arch Capital Group Ltd.                   ACGL                    68%                    27%                    5%        $113.32                 $112.47                                -1% 
   Universal Health Services Inc. Class B    UHS                     50%                    50%                    0%        $238.60                 $237.56                                 0% 
   Cigna Group                                CI                     81%                    19%                    0%        $366.64                 $397.35                                 8% 
   Principal Financial Group Inc.            PFG                      6%                    81%                   13%         $81.14                  $84.86                                 5% 
   McKesson Corp.                            MCK                     83%                    11%                    6%        $571.28                 $632.93                                11% 
   Everest Group Ltd.                         EG                     53%                    40%                    7%        $392.50                 $430.31                                10% 
   General Motors Co.                         GM                     62%                    31%                    7%         $48.45                  $57.02                                18% 
   Molina Healthcare Inc.                    MOH                     44%                    50%                    6%        $331.24                 $374.33                                13% 
   PulteGroup Inc.                           PHM                     56%                    44%                    0%        $128.29                 $142.17                                11%

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09-07-24 0942ET