The main difference between growth and value stocks is the approach that is used to identify potential investments. Growth investors focus on companies that are expected to experience above-average growth in the future, while value investors focus on companies that are considered to be undervalued by the market.
Growth stocks are typically associated with companies that are in rapidly growing industries and that are expected to experience strong earnings and revenue growth in the future. These companies may be unprofitable or have low profit margins, but they are expected to generate significant returns for investors in the future. Examples of growth stocks include technology and biotechnology companies.
Value stocks, on the other hand, are typically associated with companies that are considered to be undervalued by the market. These companies may have a history of steady or declining earnings, but they are considered to be undervalued relative to their intrinsic worth. Value investors seek to identify these companies and buy their stocks at a discount, with the expectation that the market will eventually recognise their true value and the stocks will rise in price. Examples of value stocks include companies in the financial and consumer staples sectors.
Overall, the main difference between growth and value stocks is the approach that is used to identify potential investments. Growth investors focus on companies that are expected to experience above-average growth in the future, while value investors focus on companies that are considered to be undervalued by the market.