Should I completely avoid growth shares this year?

‘Growth stocks’ are stocks of companies that are expected to increase their profits and profits faster than the market. While it can be found in any field, it is most common in industries that focus on innovation like technology.

These stocks have been the biggest drivers of global investment returns over the past decade and beyond. Think Tesla, Meta platform and Amazon. The returns this stock has generated for shareholders over the years have been impressive.

Share growth vs value

However, last year, the price was there when it grew. Rising rates are prompting me to reevaluate future profits in fast-growing tech stocks. I felt many companies were seriously overvalued. A sell-off exists, as investors like me rush to safer defensive stocks. So now I’m asking myself, should I avoid growth stocks this year and buy value stocks instead?

Unlike fast growing stocks, value stocks tend to remain stable in all market conditions. They take time to gain in price, but some that are out of favor can provide me with the opportunity to snap up a good investment that is undervalued.

Harsh climate for growth

They look more attractive than growth stocks right now because of the uncertain times and rising interest rates. You see growth stocks have benefited from an era of low debt and low inflation over the last decade. They can finance their growth with cheap debt. The party comes to a halt in 2022 as the central bank begins a cycle of aggressive interest rate hikes to combat record inflation. The Bank of England’s Monetary Policy Committee does not intend to change course until the 2% target is reached, for example. I don’t expect that to happen over the next two years, and prolonged central bank tightening is not good for growth stock valuations.

Ccontinuous luck

Regardless of this, I know that diversification is important. I don’t think it is necessary to focus only on the defense sector which can solve the short-term economic prospects. Not only that, but growth stocks have performed better than expected this year. Thus, it is important for me to be heavily exposed to sectors such as technology and biotech, just as I also value sectors such as financials and utilities.

Of course, lower priced stocks are still more attractive in the long run. But now is not the time to ignore growth, especially if the stock continues to rebound after a difficult 2022.

For example, Tesla’s stock price has recovered 77% year to date. Not many stock market companies will do well in 2023, even if their value still looks good after their previous meteoric rise.

Regardless, this is a great example of a consistently profitable growth stock. The expectation of consistent profit should reduce the risk in the purchase some share growth.

So what conclusion do I come to? After the Silicon Valley Bank crisis, the picture for tech doesn’t look so good. Growth stocks are not at the top of my wish list this year. But I’m not going to give him the cold shoulder. I will consider that profitable and deeply undervalued – Sort of growth-meets-value strategy!