Disney, Amgen Benefit From Shift to Value Stocks

A change is coming to the stock market in which investors are beginning to favor value stocks over growth ones as the economy enters the late stages of its growth cycle.

That could bode well for the likes of Walt Disney Co. (DIS) and Amgen Inc. (AMGN), two companies that fall squarely in the value camp. According to a report in CNBC, citing Gina Sanchez, CEO of Chantico Global, signs are emerging that investors are looking at value stocks, which tend to be more of a defensive bet over their high-flying brethren in the growth camp.

Growth stocks, namely tech ones, have been fueling the nine-year bull run in stocks, but with rising trade tensions and a widely held belief that earnings growth has or will soon peak, investors are setting their sights elsewhere. Sanchez pointed to earnings of companies in the S&P 500 Index for an example. She said they are “trailing at 25% plus growth. That’s not sustainable.” While many had expected earnings growth to peak in the early part of next year, Sanchez said the tax cuts signed into law by President Donald Trump has sped up the pace. Under the tax overhaul, the corporate tax rate got slashed to 21% from 35% which has been a windfall for all sorts of publicly traded companies. (See also: 'Buffett Indicator' Spells Bad News for Stock Investors.)

Value Stocks Getting Some Love Since May

Sanchez said her firm has been noticing the rotation out of growth and into value since May. CNBC noted that the S&P 500 value ETF, as an example, has climbed close to 5% since the start of May. Meanwhile, earnings growth for S&P 500 companies are up close to 24% from a year earlier, higher than the 20% Wall Street was initially looking for.

Sanchez predicts the market is heading into a second phase of the cycle that is characterized by slower growth. As a result, investors will seek to get more defensive and look for more value out of their investments. After all, in a slowing economy value stocks are favored because they are cheaper and tend to do better. And that is where Disney and Amgen come in.

Disney, Amgen Can Break Out

According to Strategas Research Partners’ head of technical analysis, Chris Verrone, Disney hasn’t been doing much over the past few years, but the stock should break out and provide upside to investors. Disney has “really been dead money for the better part of the last four or five years," Verrone told CNBC on "Trading Nation" this week.

"What we've seen most recently is getting up through that very important $110 area. That's about a four- or five-year breakout. We think this gives you a target closer to $140." At $140, that would represent a more than 27% increase compared to where the stock is trading. Recently shares were down 2.1% or $2.46 to $114.10. (See also: The Disney Turnaround Story Is Helped by Charts.)

Meanwhile, Verrone said Amgen’s stock has been trading sideways since hitting a peak in 2014-15. He thinks Amgen will come out of that and move higher. Recently Amgen was trading down 2.16% or $4.33 to $196.07.

Take the Next Step to Invest
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.