Investors generally have two investing styles from which to choose: value and growth. Considering the performance of the stock market over the past few years, there haven’t been many opportunities for value investors. The average P/E of the S&P 500 has been tracking upwards since around 2011 and now stands at 22.51 – well above the historical mean of 15.58.

Growth stocks have led the way for the past few years and value investors have been left holding the bag. P/E valuations are getting higher every day even as stocks struggle to move forward. The S&P 500 is flat year to date and while it’s recovered from its earlier losses, it hasn’t done much for stock valuations. It could finally be time for growth stocks to step aside and let value stocks shine.

Value Versus Growth

Growth stocks have enjoyed a prolonged period of success as evidenced over the past decade by the Russell 1000 Growth Index’s total return of 5.7% over the performance of the SPDR S&P 500 ETF (SPY). The so-called FANG stocks have acted as the poster companies for the explosion investors have seen in growth investments.

But growth stocks may have become too pricey for investors’ liking, and value stocks are getting too cheap to ignore. The Russell 2000 Value Index is flat so far this year, mirroring the S&P 500, but growth stocks are showing signs of weakness. The Vanguard S&P 500 Growth ETF (VOOG) is down just over 1% – not a large difference but enough to suggest that a shift from growth to value is underway.

Breaking it down further, we find that value stocks in the Russell 1000 Large-Cap Index are down about 0.4%, while growth stocks have fallen 2.2%. Over the past nine years value stocks have trailed growth stocks as the broader indexes have hit new highs, but that could be about to change.

Mutual funds that have underperformed, like American Funds Washington Mutual A (AWSHX) and T. Rowe Price Value (TRVLX), could be good pickups for value-orientated investors. John Linehan, a portfolio manager at T. Rowe Price, says that value stocks generally outperform growth stocks over the long term and right now is a prime opportunity for value investors. He also says that a rising-rate environment is good for value stocks, while stocks with a high P/E, growth stocks, will struggle.

The Bottom Line

While the broader stock indexes are getting expensive, there are pockets of value developing. Following the investment styles of Peter Lynch and Warren Buffet could pay off, especially as we enter a long-term rising-rate environment, which started with the Fed raising rates back in December.

Dividend-paying stocks should see outsized gains moving forward, while sectors like technology could be challenging. As oil begins to make a comeback, energy stocks are in value territory and could be worth adding to a portfolio. Overall, value is beginning to outpace growth – a trend that could last for years.