Growth Stocks vs. Value Stocks: Which Should You Choose?

There are growth stocks and value stocks, but there are also growing value stocks that fit into both sides of this lucrative coin.

| More on:
A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."

Source: Getty Images

Canadian investors are still wary about the current market situation. On the one hand, there are growth stocks that could bring serious benefits in the near term. However, perhaps value stocks are better if you’re a more conservative investor.

This is why today, we’re going to consider both. Depending on your portfolio and investing, let’s get down to which is better: growth stocks or value stocks?

Growth stocks 

Growth stocks offer several benefits for investors, especially those with a long-term investment horizon. These stocks are typically companies that are expected to grow significantly faster than the overall market. Many growth companies reinvest their earnings back into the business to fuel further growth.

Also, growth companies often operate in innovative sectors or industries with significant potential, such as technology, healthcare, or renewable energy. These companies can become market leaders, providing a competitive advantage and long-term growth opportunities. Over time, the reinvested earnings and consistent growth can lead to compounding returns, where the investment’s growth accelerates as the returns generate more returns.

Growth stocks can also serve as a hedge against inflation, as their earnings and stock prices tend to increase faster than the rate of inflation. This can help preserve the purchasing power of an investor’s capital. Growth companies are often more adaptable and innovative, allowing them to quickly respond to changes in market conditions, consumer preferences, and technological advancements. Therefore, including growth stocks in a diversified portfolio can balance the risk and potential return, complementing more stable but slower-growing investments like bonds or dividend stocks.

Value stocks

While growth stocks can be great, they can also come with higher risks. Therefore, perhaps value stocks could be better. Value stocks are typically priced lower than their intrinsic value, providing an opportunity to buy shares at a discount. These stocks are often associated with established companies that have stable earnings, solid balance sheets, and a history of consistent performance.

Furthermore, many value stocks offer attractive dividend yields, providing investors with a regular income stream. Because value stocks are already priced at a discount, they may have less downside risk during market downturns. Over time, value stocks have the potential to provide substantial long-term gains as the market corrects its undervaluation.

That’s especially true as value investing is based on the principle that stock prices eventually revert to their mean or intrinsic value. This reversion can create opportunities for substantial gains when undervalued stocks return to fair value.

How about a growth-value stock?

Yes, they exist! And one that I would certainly consider these days is goeasy (TSX:GSY). goeasy stock offers non-prime leasing and lending services and has shown strong growth, with a 54.3% increase in earnings over the past year. It is forecasted to have an annual revenue growth of 32.7%, significantly outpacing the broader market. The stock is trading at 20% below its estimated fair value, making it an attractive option for value investors.  

goeasy operates under the easyhome, easyfinancial, and LendCare brands, providing non-prime leasing and lending services to Canadian consumers. This niche market allows the company to capitalize on the growing demand for non-traditional financial services. Furthermore, high insider ownership (21.7%) aligns the interests of the company’s leadership with those of shareholders, suggesting confidence in the company’s future prospects.

The company boasts a high return on equity of 24.3%, indicating efficient use of shareholder funds to generate profits. This metric underscores goeasy’s operational efficiency and profitability. It also holds a solid dividend yield of 2.5%! So with shares climbing yet below fair value, it’s a strong choice on the TSX today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has positions in Goeasy. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Cogs turning against each other
Dividend Stocks

How Interest Rate Cuts Affect REITs

Now is a good time to investigate Canadian REITs and take a position in the form of stocks or exchange…

Read more »

Simple life style relaxation with Asian working business woman healthy lifestyle take it easy resting in comfort hotel or home living room having free time with peace of mind and self health balance
Dividend Stocks

3 Affordable Passive-Income Stocks That Pay Monthly

These three monthly-paying dividend stocks could boost your passive income.

Read more »

alcohol
Dividend Stocks

Retirees: 2 High-Yield Dividend Stocks to Buy in July

Retirees can rely on these dividend stocks for steady passive income and high yields.

Read more »

A Canada Pension Plan Statement of Contributions with a 100 dollar banknote and dollar coins.
Dividend Stocks

CPP Benefits Not Enough? This Top Dividend Stock Can Help Fund Your Retirement

Dividend stocks like Fortis Inc (TSX:FTS) have funded many a retirement.

Read more »

A steel grain silo storage tank with solar panel in a yellow canola field in bloom in Alberta, Canada.
Dividend Stocks

The Ultimate TSX Stock to Buy With $1,000 Right Now

Once at triple-digit prices, Nutrien stock (TSX:NTR) now offers a steal of a deal for long-term growth as well as…

Read more »

Paper Canadian currency of various denominations
Dividend Stocks

Set and Forget: 1 Dividend Stock That Could Create $1,000 in Tax-Free Passive Income in 10 Years

Enbridge operates a low-risk business that has allowed the TSX dividend giant to raise its payout by 10% annually since…

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

Passive Income: How to Make $106 Per Month Tax Free

Holding quality, high-yield dividend stocks such as Freehold Royalties in a TFSA can help you earn tax-free income for life.

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Earn a TFSA Paycheque Every Month and Pay No Taxes on it

Stocks like First National Financial (TSX:FN) pay you monthly. You can also earn monthly dividends through portfolio diversification.

Read more »