In a year marked by market swings between value and growth driven by expectations of rate cuts, GARP (growth at a reasonable price) has emerged as the overall winner, according to analysts at Jefferies.
As bets peak in favor of growth stocks and strong economic data supports value, Jeffries advises taking the middle path by focusing on stocks in companies with low PE/G ratios (price-earnings-to-growth ratio) backed by earnings momentum.
The firm noted that semiconductors and process equipment led the market in May, driven by the AI theme, while the real estate, consumer services, auto and energy sectors lagged. In Asia, Taiwanese technology and Chinese internet performed well, while Asian healthcare and pharmaceuticals lagged the most.
Meanwhile, the recent global rally in risk stocks is said to have supported GARP, making it the best-performing style this year.
Jefferies explains that PE/G investing has performed well in the US, especially for large-cap growth technology companies. In Europe, although GARP has fallen out of favor, investors are starting to focus on low PE/G companies as the market is no longer low-cost.
In addition, analysts say Asia stands out as the cheapest region on a PE/G basis, with the downgrade cycle nearing its end, making it an attractive market.
The firm noted that the first quarter earnings report showed strong results with US earnings of 79%, Asia 51%, Europe 62% and Japan 57%, indicating that rating downgrades are easing and the outlook for investments within GARP. globally.