It felt like rotating out of the risk-on growth stocks in favour of the lesser-appreciated value plays was the move for 2026, at least that’s how it seemed after the first quarter. Undoubtedly, growth and AI cooled off as energy and some of the more underappreciated sectors of the economy had a moment.
While the tables have seemingly turned once again after a strong April and what now looks to be a robust May, questions linger as to whether things are going to keep turning from growth to value and back or if it makes sense to stick with one side (risk-on versus risk-off) or the other.
With the broad markets nearing new highs, it certainly seems like playing things a bit more defensively (say with dividend stocks and lower-beta plays) might be the key to doing better for the rest of the year. Before you rotate and throw in the towel on the tech trade now that it’s quite heated, though, I think investors should think less about what “style” of investing will work next over the near term and look to the long-term trajectory.
Source: Getty Images
Thinking longer-term can be hard when investors chase gains
At the end of the day, if you’re committed to investing for the next 10 years and beyond, does it really matter what’s in and what’s trending in any given month or quarter? Probably not. If anything, the neglected names that are being rotated out might be the places where the most value could be unearthed by contrarian investors.
In my opinion, it doesn’t pay to neglect the valuation process just because we’re dealing with a high-growth tech stock with a strong AI narrative. Remember that even these plays with high valuation metrics can either be undervalued or overvalued at any given time. Indeed, it gets harder to value high-growth companies with less in the way of earnings, but that doesn’t mean you should just buy or trend chase.
At the end of the day, it’s all about the discounted value of future cash flows. And even for the firms that aren’t yet too profitable, investors should ask when the profits will come rolling in and to what magnitude. Sometimes, it makes less sense to overpay for a stock, especially if hurdles present themselves on the road to profitability and the promising story starts to look just a bit more bleak.
Value and growth aren’t mutually exclusive. In fact, investors should strive to get a good balance of both!
If you can’t value it or a stock is melting up, there’s absolutely no shame in saying you don’t understand what’s going on, how to value a firm in hand, or dismissing a name as not in your strike zone. Perhaps passing on stocks is just as important as what you choose to buy. These days, I see value on both sides of the coin.
There’s value in the AI growth world, just as there is in the lower-tech defensive world. In terms of value in tech, I think a name like Meta Platforms (NASDAQ:META) might actually be cheaper than some of the more defensive stocks out there with far less in the way of growth levers.
After sinking nearly 2% on Monday, shares are going for 21.7 times trailing price-to-earnings (P/E). For a firm with a legendary CEO in Mark Zuckerberg and a stacked Superintelligence team, I think the AI and social-media firm is worth venturing south of the border to buy!
