Tags: Morningstar | growth | stocks | gains

Morningstar: Growth Stocks Still Have Place in Your Portfolio

By Dan Weil   |  

Value stocks have been all the rage in the stock market’s rally of the past three years, as investors look for safety. But you shouldn’t give up on growth stocks, as many of them have the potential for strong gains, Morningstar analyst Christine Benz writes on the firm’s website.

The numbers for mutual fund flows certainly indicate that a lot of investors have given up on growth stocks, at least for now. Over the past year, growth stock mutual funds have lost $65 billion in assets.

Given the rout of many growth stocks over the last decade, you can’t blame investors for this move. But, the stocks have some fundamental strengths, Benz says.

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Many growth stocks haven’t been hurt by the global economic slowdown, she notes, including Apple and Alexion Pharmaceuticals.

“Of course, fast growth is only appealing if you can buy it at a reasonable price, but growth-oriented companies don't appear to be trading at unreasonable valuations right now,” Benz writes.

Stocks in Morningstar's index of large-cap growth stocks are 12 percent undervalued, according to the firm’s estimates.

To be sure, analysts predict net income for companies in the Standard & Poor’s 500 Index will decline 0.4 percent in the third quarter from a year earlier, according to Reuters.

That would be the first decline in 2.5 years and obviously doesn’t bode well for growth stocks.

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