Growth stocks tend to perform better than value stocks in the late stages of business cycles, when short-term interest rates have risen and the yield curve is flat. That’s where we are now so you should be eyeing growth stocks.
* Among value stocks, be wary of financial firms, especially banks, which tend to underperform in such an interest-rate environment. A flat yield curve, which exists today, means lower net interest rate margins and pressure on bank earnings. That is, banks have to pay out almost as much on deposits as they receive from loans, so profits are squeezed.
* Among growth stocks, look at "PEG" (price-to-earnings growth) ratios. A company growing earnings at 15 percent a year and selling at a price/earnings ratio of 15 has a PEG ratio of 15:15, or 1. Generally, growth stocks with a PEG ratio near or below 1 may be worth considering.
