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7 Value Stocks That Have Downside Protection

These seven stocks have attractive value.

Growth stocks outshone value stocks in the past decade. But no matter how high growth stock share prices go, there’s one thing that value stocks tend to have that growth stocks don’t — downside protection. Throughout history, the price-earnings ratio of the S&P 500 index has never fallen below 5, suggesting there’s theoretically a floor in how cheap a profitable stock can get. Bank of America recently compiled a list of “buy” rated S&P 500 stocks with relatively low P/E ratios. Here are 10 stocks that make the grade.

Marathon Petroleum Corp. (ticker: MPC)

Oil refiner Marathon Petroleum Corp. hasn’t exactly been on a tear in 2018, down 3.9 percent on the year. But while rising crude oil prices may be pressuring Marathon’s margins, analyst Doug Leggate says the dip is a buying opportunity for long-term investors. Leggate expects $1 billion in cost synergies over the next several years following the company’s $23.3 billion buyout of Andeavor. Marathon has a relatively low P/E of 13 and an even lower forward P/E of 8.3. Bank of America has a $95 price target for MPC stock.

Exelon Corp. (EXC)

Exelon is a U.S. electric utility giant that operates four power companies as well as the largest fleet of nuclear power plants in the country. Utility stocks typically don’t have high earnings multiples, but analyst Julien Dumoulin-Smith says Excelon has room to expand its earnings multiple closer to its peer group average. Dumoulin-Smith says Excelon has plenty of financial flexibility to increase its utility capital spending and raise its dividend, which stands at 3 percent. Exelon’s P/E ratio is only 11.8. Bank of America has a $47 price target for EXC stock.

Nucor Corp. (NUE)

Nucor stock has struggled despite aggressive international steel tariffs imposed by President Donald Trump. After peaking in May, U.S. steel prices have declined along with steel stocks like Nucor. Analyst Timna Tanners says U.S. hot-rolled coil prices will drop from around $800 per ton to about $750 in 2019. However, Nucor has the cash flow to aggressively boost capital expenditures next year and/or buy back up to 11 percent of its stock under its current capital return plan. Bank of America has a $78 price target for NUE stock.

United Rentals (URI)

United Rentals is the largest industrial and construction equipment rental company in the world, offering about $8.7 billion of equipment at nearly 900 locations in the U.S. and Canada. Analyst Ross Gilardi says investors should expect only a modest bipartisan U.S. infrastructure spending bill. However, Gilardi says recent acquisitions will help drive another year of record free cash flow for United in 2019, and the company may still be looking for additional buyouts. The stock has a P/E ratio of 5.7. Bank of America has a $175 price target for URI stock.

D.R. Horton (DHI)

D.R. Horton is the largest public homebuilder in the U.S. Analyst John Lovallo II says the company’s strong balance sheet gives it flexibility for capital return and mergers, such as the recent $190 million buyout of Westport Homes. Rising interest rates are pressuring the housing market, but Lovallo says interest rate risk is already priced into the stock. D.R. Horton stock has a P/E of 9.3 and an even lower forward P/E of 7.7, potentially limiting its downside risk. Bank of America has a $53 price target.

American Airlines Group (AAL)

Shares of American Airlines and other airline stocks are extremely cheap, but history shows the airline business has broken down during economic downturns. However, analyst Andrew Didora says today’s airline business models are much healthier. He says American is in a position to grow its unit revenue by 3 percent in 2019, closing its performance gap with its airline peers. American Airlines has a P/E ratio of 15.6 and a forward P/E ratio of 7.2. Bank of America has a $50 price target for AAL stock.

Newfield Exploration Co. (NFX)

Newfield is an oil and gas production company. Roughly 508 million of its 513 million barrels of oil equivalent in proved reserves are located inside the U.S., with the remainder held in China. Leggate says Newfield’s market valuation is depressed both in absolute terms and in relative terms and that the stock could easily double its recent levels. Newfield has a P/E of 6.5 and a forward P/E of 3.6. Bank of America has a $45 price target for NFX stock.

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7 Value Stocks That Have Downside Protection originally appeared on usnews.com



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