The Return of Value Investing: Is 2025 the Year of the Underdog?

For years, growth stocks—think tech giants and flashy disruptors—have dominated the headlines and portfolios, leaving value investing in the dust. High-flying names like Tesla or Nvidia delivered jaw-dropping gains, while the old-school hunt for undervalued, steady companies felt quaint, even obsolete. But as we roll into March 2025, with markets wobbling and economic signals shifting, the tide might be turning. Value investing—buying stocks trading below their intrinsic worth—could be staging a comeback. This article explores what value investing really means, why it faded, the signs it’s roaring back, historical proof it works, and whether 2025 could crown it king again in a world of uncertainty.

What Is Value Investing? Back to Basics

Value investing is simple at its core: find companies the market’s sleeping on—stocks priced lower than their fundamentals (earnings, assets, cash flow) suggest they’re worth. Think of it as shopping a sale rack for quality goods. Pioneered by Benjamin Graham in the 1930s and mastered by Warren Buffett, it’s about patience, discipline, and a contrarian streak. You’re not chasing hype; you’re betting on diamonds in the rough.

The playbook’s clear: look for low price-to-earnings (P/E) ratios, high dividend yields, or strong balance sheets—say, a manufacturer with a P/E of 10 and 5% yield when the S&P 500 averages 20. It’s not sexy, but it’s grounded. By March 2025, the S&P 500’s P/E sits at 28, while value sectors like energy or financials hover near 12-15. That gap’s where value hunters pounce.

Why Value Investing Faded

Value’s been on the ropes for a decade-plus. From 2009 to 2021, growth stocks crushed it—the Nasdaq 100 soared 700%, while the Russell 1000 Value Index lagged at 250%. Why? A perfect storm sidelined the underdog:

Low Rates Fueled Growth

Post-2008, near-zero interest rates made future profits king. Tech firms promising big payoffs—like Amazon reinvesting every dime—thrived as cheap money discounted their cash flows lightly. Value stocks, often mature with steady but slow earnings, couldn’t compete. In 2020, Tesla’s P/E hit 1,000 while Ford’s sat at 15—guess who got the spotlight?

Tech’s Dominance

The digital revolution minted winners. Apple, Google, Microsoft—their growth dwarfed old-economy plays like industrials or utilities. By 2021, only 7 tech companies (Mag-7) made up 28% of the S&P 500, value sectors like energy just 5%. Investors chased momentum, not bargains.

Behavioral Bias

Humans love a story. Growth stocks sold narratives—AI, EVs, cloud—while value offered dry stats. In 2017, when Bitcoin soared, who cared about a utility yielding 4%? Psychology favored the shiny over the sturdy.

But cracks showed by 2022. Rate hikes, inflation, and tech stumbles hinted the party might end. Value’s nap could be over.

Signs Value Is Roaring Back

Fast forward to 2025, and value’s pulse is quickening. Data and trends suggest a shift:

Rate Reality Bites Growth

The Fed’s 2022-2023 rate hikes—from 0% to 4.5%—changed the math. Higher rates hit growth stocks hardest, shrinking their future earnings’ present value. The Nasdaq dropped 33% in 2022; value-heavy sectors like energy fell just 10%. By March 2025, rates hover near 4%. Value’s stability shines here.

Performance Flip

Value’s outpacing growth lately. In 2022, the Russell 1000 Value Index gained 7% while growth lost 29%. In 2024, value’s up 5% year-to-date versus growth’s flatline. Energy stocks like Exxon (P/E 11) beat Tesla (P/E 70). The pendulum’s swinging.

Valuation Gap

Growth’s still pricey—the Nasdaq 100’s P/E is 32 as of this writing. Some Value stocks (developing markets, but even some prominent US businesses) offer a margin of safety in their valuations, Graham would love. The market’s noticing.

Economic Clouds

Slowing GDP (1.5% forecast for 2025, per IMF) and sticky inflation favor resilience over speculation. Value sectors—financials, materials—thrive in choppy waters; tech falters when spending tightens. Uncertainty’s value’s friend.

Historical Proof: Value’s Long-Term Edge

Value’s no fluke—it’s got a track record. History shows it wins over decades, even if it naps during booms:

The Graham-and-Buffett Era

From 1936-1956, Graham’s value picks averaged 20% annual returns, doubling the market, per his book Security Analysis. Buffett’s Berkshire Hathaway, leaning on value bets like Coca-Cola, turned $1,000 in 1965 into $36 million by 2020—18% annualized versus the S&P’s 10%.

1970s Stagflation

Amid oil shocks and 14% inflation, value ruled. From 1973-1982, value stocks returned 8% annually while growth lost 1%, per Fama-French data. Cheap industrials and utilities outlasted speculative flops.

Post-Dot-Com Bounce

After the 2000-2002 tech crash (-78% Nasdaq), value rebounded. From 2003-2007, the Russell 1000 Value gained 50%, beating growth’s 30%. Bargains like banks and energy fueled it.

2022 Reversal

Value’s 7% gain in 2022 versus growth’s 29% loss wasn’t random—higher rates and reality checks favored the undervalued. Over 90 years (1926-2016), Fama-French found value beat growth by 4.8% annually. Time favors the patient.

Why 2025 Could Be Value’s Year

March 2025’s market feels ripe for value’s return. Here’s why it might dominate:

Rate Pressure Persists

Inflation’s at 3.2%, above the Fed’s 2% goal. If rates climb to 5%—say, to curb energy price spikes—growth stocks like Shopify (P/E 80) could bleed, while value names like JPMorgan (P/E 12) hold firm. We already see stocks like Palantir, Applovin etc, down significant from their recent highs. Higher yields reward dividends over promises.

Tech Fatigue

Tech’s wobbling—Nasdaq’s down 8% from its 2024 peak. Overvaluation (P/E 28) and AI hype cooling (e.g., Nvidia’s flat Q1) signal a reckoning. Value sectors, less frothy, dodge the fallout. 

Economic Grind

GDP’s sluggish at 1.5%, consumer debt’s up 10% since 2023. People cut discretionary spending—bad for growth retailers, good for staples or banks with steady cash flows. Value thrives when wallets tighten.

Sentiment Shift

You don't see every dip being bought, like in 2024. There is a general change in sentiment and investors do get more cautious. 

Playing the Value Game in 2025

How do you ride this wave? A few moves:

• Screen Smart: Target P/E below 15, yields above 3%, debt-to-equity under 1. Energy, financials, healthcare—sectors with meaty fundamentals.
• Patience Pays: Value can lag before it pops—hold 2-3 years. Buffett waited out Coca-Cola’s dips; it paid off.
• Mix It Up: Pair value with some growth—80/20 split—for balance. If tech dips, value cushions; if it soars, you’re not out.
• Watch Cash Flow: Free cash flow’s king—firms like PepsiCo (4% yield, steady earnings) beat hype-driven shells.

In 2022, I saw a buddy shift 30% into value—banks, oil—while others chased ARK funds. He’s up 20%; they’re flat. Timing’s not luck—it’s logic.

Final Thoughts: Value’s Quiet Comeback

Value investing’s been the wallflower at the growth party, but 2025 might flip the script. At Vorpp Capital, we’re eyeing the signs—rates, valuations, history—all pointing to a shift. Growth’s had its day; the underdog’s due. Cheap stocks aren’t glamorous, but they’re grounded—offering safety in a storm and upside when sanity returns. Is this value’s year? The odds say yes, and the patient could cash in.

Do not consider this article as financial advice. We only showcase our own opinion. Always do your own due diligence before investing in alternative (volatile) investment opportunities.