Value Stocks Catch Fresh Interest as Investors Reassess Growth Valuations
Value stocks spent years in tech’s shadow, but that trade is starting to look less one-sided. These stocks, whose fortunes tend to rise and fall with the broader economy, are proving they can hold their own.
The earnings filter test
A portfolio combining value stocks with rising earnings has returned 3,471% on a cumulative basis since 2000, per Bloomberg Intelligence analysts led by Christopher Cain. That's more than eight times the S&P 500's advance over the same stretch.
Strip out the earnings component, and that same portfolio's return falls to 2,170%. Still impressive, but the difference between the two numbers is the entire argument.
"This portfolio only invests in companies with improving fundamentals. That matters when valuations are stretched, since you're buying companies that may look expensive but are expensive for a good reason," Cain said.
The specific mechanism is earnings revisions — when analysts raise their profit forecasts for a stock. A strategy targeting companies with the highest three-month upward revision in earnings gained 31% in the 12 months through May 18, 2026. Per the same Bloomberg data, it ranks second among 12 tracked factors, and has gained 8.5% so far in 2026.
The trap is buying into value or momentum without checking the profit backdrop. Bloomberg Intelligence pointed to Walmart Inc.WMT, Pfizer Inc.PFE, and Goldman Sachs Group Inc.GS as examples of companies that screened well on those metrics but still saw shares fall when their fundamentals deteriorated.
Growth stocks carry a valuation warning
After years of chasing growth, investors are starting to rethink the trade as tech valuations climb further out on the ledge.
Warren Buffett's preferred market gauge, which measures total US equity value as a share of GDP, now sits at 227%. Buffett wrote in a 2001 Fortune article that readings near 200% meant investors were "playing with fire." The current reading stands ~one-sixth above that line.
The S&P 500's price-to-earnings ratio based on forecast Q1 GAAP net earnings now exceeds 28. Per the same Fortune analysis, that's roughly two-thirds above the 100-year average of ~17. Corporate profits are currently 12% of GDP, well above the historic average of 7% to 8%.
One key risk is that unusually high profit margins tend to attract competition. That pressure can squeeze prices and chip away at the earnings power today’s valuations are betting on. Extraordinary profit growth rarely stays extraordinary forever.
The new rotation order
The Russell 1000 Value Index has gained 9.9% since early January 2026. Over the same period, the Russell 1000 Growth Index is up 4%. That spread reflects a real shift in where money is moving.
Part of the story is sector-driven. Hostilities in the Middle East have lifted energy shares, which skew toward value. Separately, investor confidence in the AI trade has started to crack, with chipmakers pulling back in mid-May after weeks of outsized gains.
Earnings estimates for Corporate America have kept climbing, and not just for AI-linked names. "Much of the recent equity market momentum has corresponded with surging near-term earnings estimates," Ben Snider, chief US equity strategist at Goldman Sachs, wrote in a recent client note.
Snider also noted that portfolio managers are finding it increasingly hard to identify opportunities outside the AI trade. His recommendation points directly at the Bloomberg Intelligence finding: "We believe investors should continue to focus on equities with fundamental support from earnings growth and revisions, whether those earnings are driven by AI or other tailwinds."
The market wants receipts
It comes down to whether the earnings match the price. Julian Emanuel, chief equity and quantitative strategist at Evercore ISI, put it plainly: the earnings revision approach stays focused on whether a company's fundamentals are genuinely improving, without making a separate call on whether its valuation is fair.
That framing matters most when broader market valuations are stretched. At a Buffett Indicator of 227% and a forward price-to-earnings ratio well above historical norms, paying up for future growth without current earnings support carries the sharpest risk. Value stocks with rising earnings are one of the few corners of this market that haven’t lost the plot.