There are a few reasons why value stocks could see a resurgence in upcoming years.

One is that there is a strong historical precedent for the consistent outperformance of value stocks, Woodard said. In the early 1970s, the stock market was initially driven by the performance of 50 large-cap growth stocks dubbed the Nifty Fifty until the market crash of 1973. In the period from 1970-1978, not only did value stocks make comparable gains to the Nifty Fifty pre-bear market, but they also experienced a less drastic downturn during the drawdown. By 1978, value stocks had risen by over 16% per year, more than double the 8% increase for growth stocks during the same period.

Taking a look at the dot-com bubble of the early 2000s, value stocks once again declined less and recovered much quicker than growth stocks, increasing 4.6% annually from 1998-2002 while growth declined 6.5% during the same period.

And in light of recent inflation shocks, value stocks have experienced less volatility in the period from 2021-2023 compared to growth.

Woodard also points to the rising rate environment as a positive development for value stocks. Growth stocks benefited greatly from low rates in previous years, but as rates remain elevated above 5% and the cost of capital has increased, value stocks are poised to benefit from this secular shift.

Then there’s the long-term projections of variables like oil production, inflation, and industrial production, which Woodard said have explained much of value’s returns relative to growth over the years. According to Bank of America’s analysis, future trends for these variables will lead to value stocks outperforming growth stocks by 5% annually by 2034.

8 ETFs to capitalize on a value rally

According to Woodard, investors looking to gain exposure to value stocks should look to exchange-traded funds in sectors like energy, banks, consumer staples, and utilities.

Utilities ETFs are at their cheapest relative to the S&P 500 since 2009 as investors have looked toward growth stocks instead of defensives. Thanks to growing demand for energy due to the development of data centers and AI, utilities are positioned to perform well going forward. Woodard likes the Utilities Select Sector SPDR Fund (XLU) and First Trust Utilities Alphadex Fund (FXU).

With supply constraints, growing demand, and more capital discipline from oil firms, energy is an attractive value investment as well, Woodard said. He recommends investing in the Energy Select Sector SPDR Fund (XLE), Vaneck Oil Services ETF (OIH), and Global X MLP & Energy Infrastructure ETF (MLPX).

Woodard also expects banks to perform well, and said they’re cheaper than the financials sector on the whole. While big banks are likely to continue to outperform, regional banks should benefit from higher clarity levels around rate cuts from the Fed, according to Bank of America’s Head of North American Banks Research Ebrahim Poonawala. Woodard said investors can gain exposure to banks through the SPDR S&P Bank ETF (KBE) and Invesco KBW Bank ETF (KBWB).

Lastly, Woodard views consumer staples as another discounted sector, especially in light of persistent inflation and a more cautious consumer. But Bank of America analysts argue that the sector should benefit from things like food retail promotions if the economy goes south, Woodard said. He recommends the iShares US Consumer Staples ETF (IYK).