Value stocks just had their best month since the peak of the 2001 dot-com bubble — and there's still more upside to come, Bank of America says

• Value stocks posted their best month of outperformance relative to growth stocks in January since the dot-com bubble in 2001.
• Leading the gains for value stocks last month was the energy sector, which was up 19%.
• Value stocks could have more room for outperformance based on historical relative valuations, BofA said.
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Value stocks reversed a years-long trend last month and outperformed growth stocks by the widest margin since the dot-com bubble, according to a Monday note from Bank of America.

The Russell 1000 Value Index outperformed its growth counterpart by 6.2 percentage points in January, representing the best relative month for the index since March 2001, when the Nasdaq 100 Index reached its dot-com era peak.

Over the past two months, value stocks outperformed growth stocks by 10 percentage points, signaling that the recent trend is accelerating. And according to Bank of America's Savita Subramanian, the outperformance of value relative to growth can continue based on historical valuations.

"Despite the rotation [into value], value still trades 1.4 standard deviations below its historical average forward price-to-earnings ratio relative to growth," she explained. The valuation gap can start to close as value-oriented sectors continue to see strong outperformance amid a shaky market.

Energy stocks in particular have surged in recent months amid rising demand for oil due to economies continuing to recover from the COVID-19 pandemic. The sector surged 19% in January, far outpacing the S&P 500's loss of about 5%.

Energy also grossly outperformed other sectors last month by 29 percentage points. That's the biggest monthly outperformance in Bank of America's sector data history going back to 1989, according to Subramanian.

The wide dispersion in sector performance is no surprise to Subramanian, who has been cautioning investors against chasing high-growth tech stocks and instead recommends investors find value in quality stocks amid what could be a volatile year or two for the broader market.

"Tepid earnings growth coupled with the end of free money indicate flattish returns through 2023," she said, adding that the Fed's dual mandate doesn't mean it has to support the S&P 500, especially with inflation at multi-decade highs.

"I just don't think it's time to buy the S&P 500 wholesale. I don't think this is going to be a year where the S&P turns in great returns," Subramanian told CNBC on Monday. Subramanian maintains a 2022 year-end S&P 500 price target of 4,600, representing potential upside of just 1% from Monday's close.