Low interest rates have taken the air right out of growth stocks the past two years, as investors put their money into high yielding conservative stocks.

In some cases, value stocks have gone so high they could remain around these levels for the next couple of years. For instance, 3M (MMM) had a median P/E of 14 during 2008, 2009, 2010, 2011 and 2012. Now MMM has a P/E of 21 — yet is expected to grow profits just 8% in 2016. The yield of 3% attracted income investors, but now MMM is overvalued.

Interest rates are now rising, and that could mean a flow of money out of conservative stocks. It could mean good news for growth stocks, which have some catching up to do — Technology in particular. My Top Ten for 2017 is heavy on Tech, and China too.

 


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David Sharek

David Sharek is stock portfolio manager and CEO of DavidSharek.com. David believes a company's profits ultimately drive the price of its stock. His book The School of Hard Stocks can be found on Amazon.com.