Turns out, loading up on technology giants isn’t the only route to better returns. Value companies, too, stand a decent chance of trouncing the market — as long as several conditions are met.
Picking out winners in the group whose stocks are tied the most to the economy requires two steps, strategists at Bloomberg Intelligence say. First select companies with rising share prices, then narrow the list to only keep those with improving earnings.
That portfolio returned 3,471% on a cumulative basis since 2000, more than eight times the advance in the S&P 500 Index, BI analysts led by Christopher Cain said in a note to clients. And it’s outperformed the benchmark equity gauge by more than two-fold this year through April, gaining 12.1% during that time.
The finding offers solace to those worried that having too light a position in technology shares would lead to meager long-term returns. It also underscores the importance of factoring in a profit backdrop when picking stocks. Strip out the earnings filter from the portfolio, and its return drops to 2,170%.
“This portfolio only invests in companies with improving fundamentals. That matters when valuations are stretched, since you’re buying companies that may look expensive but are expensive for a good reason,” said BI’s Cain. “It helps avoid buying stocks that trade at a premium without the underlying fundamentals to justify it.”
Value stocks, the group comprising companies whose fortunes are closely tied to the economy, have spent the better part of the last decade trailing growth as investors chased companies at the forefront of digital transformation.
The trend has reversed so far in 2026 as hostilities in the Middle East fueled a rally in energy shares and worries mounted that the euphoria around artificial intelligence has gone too far, too fast. The Russell 1000 Value Index has advanced 9.9% since early January, compared with a 4% gain in the Russell 1000 Growth Index. Chipmakers, the stock market’s biggest gainers this year, have stumbled since mid-May as investors pulled back from the group after weeks of outsize gains.
Rising earnings estimates have been the cornerstone of the bull run in US stocks that’s powered past geopolitical tensions in the Middle East and uncertainty about the path of inflation at home that in another environment may have derailed the advance.
And while value and momentum have been among the most popular investing factors, disregarding the companies’ earnings backdrop may come at a cost, say strategists at BI. They cited Walmart Inc., Pfizer Inc., and Goldman Sachs Group Inc. as examples of companies that screened highly in those categories but saw shares fall as fundamentals deteriorated.
“In essence, going with earnings revisions as a factor is staying convex to the concept of a company’s fundamentals improving, without passing judgment on what the valuation around the improvement of those fundamentals might actually be,” said Julian Emanuel, chief equity and quantitative strategist at Evercore ISI.
Analysts have continued lifting profit forecasts for Corporate America, and chiefly for companies tied to artificial intelligence, helping offset concerns around rising inflation as oil prices have surged from the Iran war.
A strategy that entails chasing stocks with the highest three-month upward revision in earnings has gained 31% in the 12 months through May 18, the second-best performing group among 12 factors tracked by Bloomberg. It has advanced 8.5% in 2026, in the third-biggest gain among the factors.
“Much of the recent equity market momentum has corresponded with surging near-term earnings estimates,” Ben Snider, chief US equity strategist at Goldman Sachs Group Inc. wrote in a note to clients. He said recent conversations with portfolio managers have underscored the difficulty of finding investment opportunities not linked to AI.
“We believe investors should continue to focus on equities with fundamental support from earnings growth and revisions, whether those earnings are driven by AI or other tailwinds.”
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