Value vs Growth Ratio Hits Cycle Low—Top Value Picks to Buy

Key Points

• A rotation into value stocks might be imminent in the market today, and investors should be positioned before it happens to them by surprise.
• Institutions have already been allocating capital into this belief ahead of time. 
• Three names stand out to offer both stability and upside momentum in this sentiment shift.

The benchmark process is at the core of measuring financial market performance, and seeing a single stock or asset class perform on its own offers very little information to investors unless it is benchmarked against another useful and related name or space, where the entire methodology comes into play. 

Today, one specific ratio could send value stocks flying next.

In a world where the most exciting stocks on the market have seen their valuations rise to stratospheric levels, other high-quality businesses have been left behind and forgotten during this rally.

Times like these offer investors some of the best opportunities to close the performance gap as long as they land on the right side of the equation. Today, that side suggests that value stocks will outperform.

By tracking the performance ratio between the iShares S&P 500 Value ETF NYSEARCA: IVE and the iShares S&P 500 Growth ETF NYSEARCA: IVW, investors can see how the past couple of quarters have created a gap that can be exploited. Within this space, it is stocks like PepsiCo Inc. NASDAQ: PEP, Berkshire Hathaway Inc. NYSE: BRK.B, and even Coca-Cola Co. NYSE: KO that act as some of the best picks moving forward.

An Inevitable Rotation Swings in Favor of Pepsi Stock

Given that this ratio is now at a cyclical low, it is the law of the market that a catalyst down the line might shift things back into balance. Whether it's trade negotiations, geopolitical conflicts, or economic data within the United States, there is a high likelihood that an event will occur to shift the sentiment and capital rotation back to discounted value.

This is where Pepsi stock comes into play, as it not only trades at a low 72% of its 52-week high but also on a forward price-to-earnings (P/E) ratio of only 16.4x today, the lowest valuation multiple seen for the company since the onset of the COVID-19 pandemic.

Logic will argue that this business is doing much better than it was even before the pandemic, and today’s economic conditions are nowhere near what they were back then; lockdowns and uncertainty could surely justify such a discounted multiple for Pepsi, though the reasoning is lacking for it to go back to such a cheap multiple in today’s market.

This creates a massive opportunity for investors to start accumulating positions in Pepsi stock for the coming months and quarters, but it will be the value-to-growth ratio that ultimately tells them when this rotation begins. It looks like some of the “smart money” corner has already begun rotating ahead of this broader sentiment shift, according to institutional flows.

Those from UBS Asset Management have now built a stake worth up to $1.7 billion in Pepsi stock, which acts as a reiteration of this upcoming shift happening sooner rather than later, something investors must consider in their views.

Momentum and Upside Already in Berkshire Hathaway

Whenever anyone thinks of a value play, Berkshire Hathaway is always at the top of the list, which might explain why this holding company now trades at 90% of its 52-week high compared to many others in the value space. If sentiment is expected to change and rotate into value stocks, it’s logical to see this name lead the way first.

More than just momentum relative to its highs, investors can see that as far back as March 2025, analyst Kevin Heal from Argus placed a valuation target of up to $575 for Berkshire Hathaway stock. The fact that this view hasn’t changed since then says a lot about how Wall Street feels about this stock and its future, but that’s not all.

Compared to today’s prices, this valuation calls for not only a new 52-week high to be broken through but also up to 18% additional upside potential. Chances are that, when the rotation happens, there will be a lot more updates coming from other analysts expressing where they see the true value of Berkshire Hathaway heading.

Premium Investors Go for Coca-Cola

There are some in the market who would argue Pepsi stock is very cheap today for reasons that are yet to be known, and that’s a risk most aren’t willing to take. If that is the case, then the opposite view can be taken regarding premiums, and this is where Coca-Cola comes into play, with a steep 28.2x P/E valuation compared to the consumer staples sector's average of 19.6x.

However, some of the reasons why Coca-Cola is trading at 90% of its 52-week high should be the same ones that could lead Pepsi higher, so having both in a watchlist could yield great results with less volatility. A weakening dollar, a pending rotation into value, and momentum will all serve as bullish factors for these international consumer names.

In fact, it appears that investors from UBS Asset Management did their homework on both Pepsi and Coca-Cola, as they also built up a position of $2.2 billion in Coca-Cola as of the same dates when they established a position in Pepsi, indicating that this rotation is more than just a thesis.