Navellier Growth: your source for market-beating growth stocks

 

Can you explain why stocks are getting hammered? What makes them so susceptible to downward movement in this market environment?

Based on the Russell indices, value investing outperformed growth investing for seven straight years (2000 through 2006). Financial stocks, such as banks, led the value indices (e.g., Russell 1000 Value) higher in the past several years. However, in my opinion, value stocks, such as GM, peaked when many low-quality value stocks led the overall stock market higher in 2006.

In 2007, growth stocks outperformed value stocks every month, and the financial stocks that dominate the value indices, such as banks, have “flamed out” due to the ongoing credit crisis in structured investment vehicles such as collateralized debt obligations (CDOs), structured investment vehicles (SIVs) and other instruments behind the subprime-fueled credit crisis.

Some big banks, like Bank of America (BAC) now have dividend yields in excess of 5%, so the selling in financial stocks is getting overdone, but due to the overhanging crisis in subprime mortgages, mortgage companies and other financial stocks have been hit very hard and may continue to be hit with relentless selling pressure as Wall Street shifts its focus away from value investing to growth investing as many strategists are predicting. I suspect that growth investing will outperform value investing for possibly two years or more.

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