Why Value Stocks Are the Best Bet Today—and Goldman Sachs Agrees

Key Points

• Now that the value vs. growth spreads are bottoming at multi-year lows, investors should start considering potential Buys in this value list.
• Wall Street analysts agree with this view and pick even the Goldman Sachs chief equity strategist.
• Institutional investors are behind some of these name picks, another bullish gauge for investors to consider.

The stock market is not the same as it was 20 or 30 years ago when every asset class and product was isolated in its own price action and narrative. However, today’s market is very different, as everything is connected, from bonds to basic materials and commodities. In this way, stocks and exchange-traded funds (ETFs) and their correlations become all the more important for investors to keep track of in their portfolios and idea-generation processes.

This is why today’s price action between growth and value stocks matters, especially as the Federal Reserve (the Fed) has cut interest rates for the third consecutive time. Investors can check out this article to see how the spreads between the iShares S&P 500 Value ETF NYSEARCA: IVE and the iShares S&P 500 Growth ETF NYSEARCA: IVW are at multi-year lows, giving a rare opening into today’s value stocks.

Knowing this opportunity is present here, and how Goldman Sachs’ chief equity strategist claimed that “risk-adjusted” return stocks are the best picks for 2025. The translation would say that stocks with lots of upside and very little downside are the best picks, also known as value stocks. That’s where names like PepsiCo Inc. NASDAQ: PEP, Nike Inc. NYSE: NKE, and ASML Holdings NASDAQ: ASML come into play for this opportunity.

PepsiCo Stock’s Discount Won’t Last Long

After a recent decline in food and beverage stocks like Coca-Cola Co. NYSE: KO and McDonald’s Co. NYSE: MCD, Pepsi got dragged into the implications that the new head of health for the United States proposed. This proposal would call for most brands to stay away and abandon high-fructose syrup as their sweetener of choice.

Given that most of these brands use this ingredient for their sweetening, investors and markets panicked, as the implications are not yet known regarding margins and potential market share. One thing is certain, however, and that is that PepsiCo has enough scale and reach to pivot underlying ingredients without a large hit to its financials.

That might be why, as the stock traded down to 84% of its 52-week high, Wall Street analysts now see double-digit upside in the brand from here. Especially those at Deutsche Bank decided to boost their ratings on Pepsi stock as of December 2024 from a previous hold to a buy.

At the same time, they also boosted their valuations to $184 a share, representing up to  21.1% upside from where the stock trades today. This gives investors one way to tap into the upside potential inherent in value stocks today.

Nike Stock, an Institutional Pick Today

Bill Ackman, manager of the Pershing Square hedge fund, has been buying the dip in Nike stock, especially now that it trades at a low of 62% of its 52-week high. Nike’s global reach and brand penetration will be the factors that help it stand out again in the consumer discretionary sector.

But Ackman wasn’t the only one willing to express an optimistic view on Nike stock; those at State Street decided to boost their holdings in Nike stock by as much as 3.3% as of November 2024, bringing their net position to a high of $5.1 billion or 3.8% ownership in the company.

Then, there is the Wall Street analyst sentiment side of the equation. As of today, the consensus price target on the stock is set at $91.7, calling for up to 19% upside from where it trades today. However, as institutions start betting on this stock ahead of earnings, higher valuations will likely be called for.

That’s where the lead from those at Evercore becomes useful; their outperform rating alongside a $97 share price target would call for a more realistic 25.8% upside from today’s levels.

ASML: The Best Risk/Reward Setup in Semiconductors

Everyone is focused on the popular names in the semiconductor industry, such as NVIDIA Co. NASDAQ: NVDA. However, there are better risk-to-reward setups in the market that give investors the best effects of this value stocks setup relative to all others.

This better setup comes through ASML stock, as it trades at only 68% of its 52-week high compared to a much higher 85% for NVIDIA stock. More than that, its current price-to-earnings (P/E) ratio of 37.7x gives investors a major discount to the rest of the computer sector and its average valuation of 271x P/E today.

Wall Street analysts are now forecasting up to $25.62 in earnings per share (EPS) for the next 12 months, a significant boost from today’s $19.1 level, enough of an expansion to justify the stock returning toward its 52-week highs.

That is why today’s analyst ratings reflect this potential EPS growth. Mainly, those at J.P. Morgan Chase saw it fit to keep an overweight rating on ASML stock since October 2024, along with a $1,148 price target to call for a 61.6% upside from today’s prices.