Investors have recently questioned the high valuations of AI hyperscaler stocks. There has been turbulence in semiconductor stocks. Even if AI technology turns out to be transformative for the overall economy, there is concern among investors about whether the companies building AI tools are paying too much for uncertain return on investment.
A market outlook from Vanguard published on July 22 shows the investment firm optimistic about some U.S. stocks -- but less so about U.S. growth stocks. The outlook stated that Vanguard is "constructive on the shorter-term outlook for equities as the AI investment cycle deepens" but that Vanguard's "medium-term outlook is more cautious." The Vanguard outlook described U.S. growth stock valuations as "already stretched" and said that "we continue to prefer U.S. value stocks" for longer time horizons. This Rare Signal Is Flashing Again.
In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue » Vanguard's 10-year markets forecast also says that U.S. value stocks are expected to strongly outperform U.S. growth stocks.
The company's research expects U.S. value stocks to deliver average annual returns of 6.4% to 8.4%, while U.S. growth stocks are expected to deliver only 3.6% to 5.6%. No investment company's research is 100% guaranteed to be correct. Future returns are unpredictable.
But if you agree with Vanguard's general assessment that value stocks might be undervalued -- and ready to outperform growth stocks -- then here are two value stock ETFs that might be worth considering for your portfolio. Value Factor ETF (NYSEMKT: VFVA) offers a diversified portfolio of 666 value stocks, including large-cap, mid-cap, and small-cap companies. The fund is actively managed, so it charges a slightly higher expense ratio than most Vanguard funds, at 0.13%.
This fund's top five holdings are Salesforce, making up 0.88% of the fund; Bristol-Myers Squibb, 0.85%; EOG Resources, 0.83%; Intuit, 0.82%; and General Motors, 0.79%. Other stocks in the fund's top 10 holdings include household names AT&T, Pfizer and Verizon Communications. Many of these are companies that you've heard of but that Vanguard's fund managers believe the stock market has undervalued.
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