US stocks look expensive right now. However, investors looking for bargains can still find them in the market's value box.

After leading large-cap growth stocks continued to fall in March, several Wall Street strategists advised their clients to consider large-cap value stocks. In the two research reports seen by MarketWatch, strategists used lower valuations of value stocks, higher dividends, and the fact that long-term portfolio managers do not hold enough value stocks as reasons to consider buying them.

Furthermore, value stocks have strong balance sheets. If the Federal Reserve is unable to achieve the three interest rate cuts expected by investors in 2024 due to accelerated inflation, value stocks may protect them from being impacted.

SavitaSubramanian (SavitaSubramanian) of Bank of America Global Research believes that all of these factors provide “compelling reasons” to consider value stocks.

“One reason we've heard of a bear market is that compared to its own history, the S&P 500 index is expensive on almost every indicator. We think this is the most compelling reason for a bear market, given long-standing differences in composition and quality,” Subramanian said in a report received by MarketWatch on Monday.

He wrote, “But for investors who are more value sensitive, we think large-cap value stocks have very compelling reasons.

In line with the name of large-cap value stocks, large-cap value stocks are currently much more cost-effective than large-cap growth stocks that have dominated the market since the beginning of 2023.”

According to research by a team of analysts led by Jason Pride (Jason Pride), head of investment strategy and research at Glenmede, the valuation of large-cap growth stocks is in the 93rd percentile compared to history, which means they are quite expensive. Large-cap value stocks, on the other hand, only ranked 77th in terms of valuation.

According to FactSet, this means that the forward price-earnings ratio of the Russell 1000 Value Index is slightly higher than 16 times, while the S&P 500 is valued at around 21 times the expected earnings in 2024.

However, in addition to lower valuations, there are many other characteristics that make value stocks more popular. Compared to the Russell 2000 Index, companies in the Russell 1000 Value Index lost a lower percentage, making them more able to cope with a prolonged high interest rate environment.

Value stocks also have higher dividend rates. If inflation takes longer to subside than Federal Reserve Chairman Powell and other senior officials say, this can also help them avoid a market rebound.

Compared to corporate value, value stocks have higher free cash flow, which also helps them overcome short-term difficulties when the Federal Reserve is hesitating whether to cut interest rates.

Many of the same characteristics also helped value stocks escape the worst market turbulence of 2022.

Although value stocks also fell in 2022 as the inflation rate reached its fastest rate in 40 years, the Russell 1000 value index lost about half of the S&P 500 index in 2022 in percentage terms.

Although value stocks continued to perform poorly on Monday, value stocks have remained almost the same as the increase in the S&P 500 index since January 1, as the market rebound has expanded to include highly cyclical industries such as energy, finance, and industry. All of these industries account for a higher share of value indices than growth indices.

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