Why ASX 200 value shares are surviving the sell-off better than growth shares

ASX value shares are down 5.45% year to date while growth shares are down 16.5%.

| More on:
A woman sits at her computer in deep contemplation with her hand to her chin and seriously considering information she is receiving from the screen of her laptop regarding the Xero share price

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Value shares are typically blue-chip companies trading below their intrinsic worth 
  • Negative sentiment in the market today is dragging down the share prices of great companies 
  • The world's most famous value investor, Warren Buffett, is already buying up value stocks in the US 

The S&P/ASX 200 Value Index is down 5.45% year to date while the S&P/ASX 200 Growth Index is down 16.5%.

Why the disparity, you might ask?

Well, in order to understand why, you need to know a bit about what value investing is first.

What is value investing?

Firstly, ‘value’ isn’t a permanent character trait of a share — rather, it’s a situation. In order to be a value share, the stock must be trading below its intrinsic worth and, therefore, offer ‘value’ to the investor.

As you can read in our ‘Guide to value investing‘, the ASX shares that value investors seek look cheap compared to the underlying revenue and earnings of those businesses.

According to our guide:

Investors who use the value investing strategy hope that a company’s share price will rise as more people come to appreciate the true intrinsic value of the company’s fundamental business.

Shares in any industry can be value shares. But generally speaking, value investing does tend to centre around well-established blue-chip companies with “consistent profitability [and] stable revenue streams”.

Value investors want to buy the highest-quality ASX shares as cheaply as possible. Then they wait for the rest of the market to catch on and bid the share price up in order to achieve some profit.

What’s the first rule of value investing?

The first rule with buying ASX value shares is to buy low and sell high. Easy right? Well, no.

Buying low requires you to be able to identify when an ASX share is trading below what it is worth.

That’s why value investors spend a lot of time doing research. Their key goal is to understand the intrinsic value and a fair share price for each business they’re interested in.

Then, they wait for opportunity, which can come in many forms. One form is when general negative sentiment drags down the entire ASX 200. You see where I’m going with this, right?

Value investors are having a party right now

Today, there’s significant negative sentiment in the share market. People are worried about rising inflation and interest rates. They’re not just worried about the impact on their personal wallets. They’re also worried about how these macro-economic issues will impact the companies they are invested in.

When there’s fear in the market, people often sell. They lose confidence and they sell on emotion. Many just want their money out while the market is jumpy.

That means the highest quality companies get sold off with the rest of the market. Their share prices fall, and that’s when value investors pounce.

Whether it’s the right time for value investors to buy yet is a matter of opinion. But you can bet they’re at least actively watching the market right now!

Why ASX value shares aren’t falling as much

It’s this pouncing effect from value buyers that might be why ASX 200 value shares aren’t falling in price as much as ASX growth shares.

After six months of falls during which time the ASX 200 has lost 12.5%, value investors might already be out there buying the dip and dollar-cost averaging their holdings.

In general, ASX investors are feeling nervous right now. When people are fearful, they want to mitigate risk. And it’s the boring (but reliable) blue chips that can provide the certainty investors are craving.

And they sure look appealing at today’s prices.

Examples of ASX 200 value shares

S&P Global has categorised a bunch of ASX shares as value shares right now. Let’s test a few of them.

The top five constituents of the S&P/ASX 200 Value Index (by market capitalisation) are:

  • National Australia Bank Ltd (ASX: NAB) — share price down 5.65% year to date
  • BHP Group Ltd (ASX: BHP) — share price down 5.85% year to date
  • Commonwealth Bank of Australia (ASX: CBA) — share price down 10.8% year to date
  • Westpac Banking Corp (ASX: WBC) — share price down 9.2% year to date
  • Australia and New Zealand Banking Group Ltd (ASX: ANZ) — share price down 20.4% year to date.

Who sees good value here?

Other reasons why ASX value shares aren’t falling as much

Remember, ASX value shares are generally well-established companies selling at a discount. They’re not young unproven companies yet to make a profit (like many ASX tech shares) selling at a discount.

This means that, by nature, value shares don’t exhibit the same share price volatility as growth shares.

It’s also probably fair to assume that there’s less selling activity on value shares compared to growth shares, too.

Long-term owners would be far less inclined to sell their highest-quality shares because of short-term headwinds like inflation.

Some long-term investors have held their blue chips through 9/11, the global financial crisis, and the pandemic. What’s a little inflation compared to these events?

The quintessential value investor: Warren Buffett

Famous investor Warren Buffett is one of the world’s most eminent value investors. He’s got two rules of investing, which go something like this: “The first rule of investing is don’t lose money, and the second rule is don’t forget the first rule.” 

So, value investing suits him. He says: “If you buy things for far below what they’re worth and you buy a group of them, you basically don’t lose money.” 

As my fellow Fool in the US, Keith Speights, reports, Buffett is already in the market buying up value stocks.

Click here to learn how to identify ASX value shares.

Motley Fool contributor Bronwyn Allen has positions in Australia & New Zealand Banking Group Limited, BHP Billiton Limited, Commonwealth Bank of Australia, and Westpac Banking Corporation. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

A woman shouts through a megaphone.
Share Market News

Earnings preview: Here’s which ASX shares are reporting today

Wondering which ASX companies are releasing results on Friday?

Read more »

A happy male investor turns around on his chair to look at a friend while a laptop runs on his desk showing share price movements
Share Market News

5 things to watch on the ASX 200 on Friday

The ASX 200 looks likely to have a decent finish to the week...

Read more »

A group of happy office workers throw papers in the air and cheer after seeing the Latrobe Magnesium price skyrocket 38%
Share Market News

Here are the top 10 ASX 200 shares today

These ASX 200 shares outperformed all others on Thursday.

Read more »

Three male athletes sprint on an athletics track with the sun low on the horizon behind them representing the race between ASX lithium shares to outperform
Share Market News

Here are the 3 most heavily traded ASX 200 shares on Thursday

Our most traded ASX 200 share today is down by more than 5%.

Read more »

Bear market
Share Market News

Here’s why one big bad bear is suggesting the stock market could crash by 50%

One strategist thinks markets haven't bottomed.

Read more »

Investor sitting in front of multiple screens watching share prices
Share Market News

5 things to watch on the ASX 200 on Thursday

Here's what to expect on the ASX 200 on Thursday...

Read more »

A trendy woman wearing sunglasses is making it rain, spraying cash on that bargain.
Share Market News

Here are the top 10 ASX 200 shares today

It was a great day on the market for these ASX 200 shares.

Read more »

An office worker and his desk covered in yellow post-it notes
Share Market News

Here are the 3 most heavily traded ASX 200 shares on Wednesday

Guess which ASX 200 sector is dominating the market's volume charts today.

Read more »