What's the Difference Between a Growth and a Value Stock?

The following video is part of our "Ask a Fool" series, in which Motley Fool analyst Austin Smith answers questions across the investing universe.

In today's edition, Austin answers one of the most common questions we get at the Fool: What's the difference between a growth and value stock? Austin identifies value stocks as those which are mispriced, or trading to a discount to their intrinsic value. Value investors are buying companies with the expectation that shares will rise to reflect the real value of the company. Meanwhile, growth stocks are those that investors are buying with the expectation of large earnings in the future. There are a few telltale signs covered in the video to help you identify whether you're looking at one type of stock or another. Austin reminds investors that growth and value strategies aren't mutually exclusive and thinks Warren Buffett said it best when he quipped that "growth and value investing are joined at the hip."

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At the time this article was published Austin Smith owns shares of Berkshire Hathaway.The Motley Fool owns shares of Netflix, Berkshire Hathaway, Amazon.com, and Intuitive Surgical. Motley Fool newsletter services have recommended buying shares of Intuitive Surgical, Berkshire Hathaway, Amazon.com, and Netflix. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter services free for 30 days.

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Serenity Stocks

When you buy a value stock, you have already made a profit by buying something that is worth more in stability, assets and earnings than what you are paying for.
When you buy a growth stock, you essentially pay more than something is worth right now in the anticipation that it will be worth more later.

The first is sound business.
The second is a gamble.

Ben Graham was Warren Buffett's professor and mentor, and the original proponent of Value Investing.
Buffett calls Graham his second greatest influence after his own father, and even named his son after Graham.

The Benjamin Graham stock screener (http://www.anahin.net/screener) gives a complete Graham analysis, for all 4000 stocks listed on the NYSE and NASDAQ.

June 07 2012 at 5:03 AM Report abuse rate up rate down Reply