At present, the gap between value stocks and growth stocks is so large that it may be time for value stocks to begin to catch up.

With the stock market near all-time highs, it is difficult to find cheap stocks. But at present, the gap between value stocks and growth stocks is very large, and some value stocks may rebound, but the premise is to avoid the value trap and choose those stocks with good quality.

Undervalued stocks are not hard to find, but it is not easy to avoid value traps. Airlines, banks and energy stocks are cheap because profits are likely to fall sharply this year and the recovery is much slower than in high-growth sectors such as technology stocks.

But now that the gap between value stocks and growth stocks is too wide, it may be time for value stocks to start catching up.

In the first half of 2020, the price of growth stocks was 26 percentage points higher than that of value stocks, a record high. In the first half of this year, the price of growth stocks outstripped value stocks by more than for the whole of 1999, when the stock market was on the eve of the bursting of the technology bubble, according to BofA Securities.

The quantitative research team at Bank of America Securities recently gave several reasons why value stocks are about to make a comeback.

In the past 14 recessions, the stock market has been led by value stocks during the recovery of the stock market. In the past, when the profits of listed companies rebounded from the lowest point to the highest point, the stock market was also led by value stocks. This is one of the cheapest periods in history for value stocks, while the premium for growth stocks is close to record levels.

BofA Securities also believes that some growth large-cap indexes may fall due to the excessive concentration of positions in large-scale technology stocks. Almost all of the S & P 500's gains this year have been contributed by the top six technology stocks, which are likely to face regulatory blows in the United States and abroad.

The "Japanization" of the US economy is also a reason why investors should consider value stocks. BofA Securities said that during Japan's "lost decade", interest rates and economic growth were very low, and trade frictions led to a slowdown, when value stocks performed best. There are some similarities in the current economic environment in the United States.

To be sure, growth stocks are indeed more popular at the moment.

Strong profit growth, long-standing positives, investor fears of missing opportunities and trillions of dollars of liquidity injected by central banks around the world have all provided great support for large growth stocks. Bank of America Securities points out that ESG's scoring method is also good for technology stocks and bad for energy stocks. ESG investment funds began to increase around 2008, when value stocks began to outperform the market.

BofA Securities believes that stock quality should be taken into account when selecting value stocks, so that the annualized return of such value stocks can increase by an average of 1.2 percentage points. Investors should also avoid sectors where share prices fall faster than profits.

Barron Weekly screened stocks in the S & P 500 based on expected price-to-earnings ratios, price-to-book ratios, sales growth and return on equity that measures quality. the selected stocks are ranked according to the relative value of a stock within its sector.

Barron Weekly selected the top 20% of stocks with the highest relative value from all sectors, and these stocks should have an expected return on equity of at least 30% for the next fiscal year.

Nine stocks meet the screening criteria:

NetApp (NTAP), Marriott International (Marriott International, MAR), Illinois Tool Works (ITW), Rockwell Automation (Rockwell Automation, ROK), Avery Dennison Dennison (AVY), Omnicom (Omnicom Group, OMC), Nike Inc (Nike, NKE), NVIDIA Corp (Nvidia, NVDA) and NVR (NVR).

NetApp, a cloud computing and software company, expects revenue to grow 3.3 per cent and net profit to grow 14.8 per cent in the next fiscal year. The stock is down 26% this year, with a forward price-to-earnings ratio of 12 times and a dividend yield of 4.2%, making it one of the highest dividend yields among technology stocks.

Marriott's sales are expected to fall 46 per cent this year as leisure and business travel have all but stagnated. But analysts generally expect revenue to rise 50% to $17.1 billion in 2021. Net profit is also expected to grow to $945 million and further to $1.4 billion in 2022. At 35 times forward earnings, the stock looks expensive, but it is cheaper in the hotel sector, according to FactSet. Marriott's return on equity is expected to be 298% in 2021.

Illinois Tool Works, a diversified maker of industrial equipment and components, expects sales to grow by 10 per cent in 2021, boosting earnings per share by 23 per cent to $7.06. FactSet data show that the stock is expensive in terms of price-to-earnings ratio, but cheap in terms of price-to-book ratio and price-to-sales ratio. The return on equity is expected to be 97 per cent in 2021, with a dividend yield of 2.3 per cent.

Rockwell Automation, an industrial automation company, is up 12.5% this year. The company's sales have been boosted by manufacturers upgrading its supply chain and automating factory processes. Revenue is expected to grow by 5% in the next fiscal year (as of September 2021) and by a further 7% in fiscal year 2022. Although the stock is not cheap in terms of price-to-earnings ratio, it is cheaper in terms of price-to-book ratio and price-to-sales ratio, according to FactSet. The stock has a high return on equity, which is expected to reach 88 per cent in fiscal 2021.

According to FactSet, price-to-earnings ratio, price-to-book ratio and price-to-sales ratio all show that packaging material supplier Avery Dennison is cheap. The stock is expected to return on equity of 33 per cent in 2021. Avery Dennison's shares are down 10% this year, mainly on the back of a 9.4% drop in profits. But analysts expect sales to rise 4.4 per cent and profits to rise 11 per cent in 2021. The dividend yield on this stock is 2%.

Shares of advertising giant Omnicom are down 33% this year, and sales are expected to fall 17%. Affected by the global economic recession, the global advertising industry is under pressure. Omnicom's forward price-to-earnings ratio is low, just 10 times. Sales are expected to grow 5.5% to $13.6 billion in 2021. The stock market has a turnover ratio of 0.9 times and is expected to achieve a return on equity of 36 per cent next year. The dividend yield on this stock is 4.8%.

Nike Inc's high forward price-to-earnings ratio of 57 times reflects the company's strong and steady growth in the global sneaker and clothing market and the prospect of grabbing market share from underperforming competitors such as Under Armour. According to FactSet, Nike Inc's price-to-book ratio and market-to-sales ratio are relatively low, and his return on equity in the fiscal year to May 2021 is expected to be 46 per cent, a relatively healthy level.

Chipmaker NVIDIA Corp also has a high forward price-to-earnings ratio of 63 times. Although the stock has recently fallen from its 52-week high, it is still up 122% so far this year. NVIDIA Corp's share price is high, and although it is a bit far-fetched to classify it as a value stock, FactSet data show that it is still cheaper than other chipmakers in terms of price-to-book ratio, price-to-sales ratio and other indicators. Sales are expected to grow 44 per cent in fiscal 2021 and profits are expected to grow 57 per cent (driven by acquisitions).

Shares of homebuilder NVR are up 7.5 per cent this year. Steady deliveries of new homes and a 12% increase in the backlog of homes under construction have supported the company's share price. Analysts expect sales to grow 8.6 per cent in 2021, boosting profits by 15 per cent. The expected return on equity is 35%. At 16 times forward earnings, NVR is not very cheap, but it is one of the cheaper stocks in the homebuilder sector in terms of price-to-book ratio and price-to-sales ratio.