Great stocks to buy for value
The 2010s were dominated by growth stocks, and when 2020 rolled around, many investors felt that it was time for value stocks to take the lead. Theoretically, a bear market would be the perfect time for value stocks to outperform growth, but year to date, many value names have continued to underperform their growth-minded peers; cheaply priced energy companies, in particular, kept getting cheaper as oil prices fell alongside plummeting demand amid the pandemic. But energy isn’t the only sector with attractively priced stocks. For the prudent, patient investor, a number of solid value names look quite cheap at today’s low prices. Here are seven of the best value stocks to buy in 2020.
OneMain Holdings (ticker: OMF)
The only financial stock on this list, the $5.2 billion OneMain Holdings is a consumer credit and insurance business that happens to be priced fairly conservatively. Some simple metrics support OMF’s inclusion as one of the best value stocks to buy in 2020: It trades for just eight times earnings despite analyst expectations for roughly 12% compound annual growth in earnings per share (EPS) over the next five years. Also an attractive company for income investors, OneMain has a trailing dividend yield of 9.4% and tends to pay special dividends to shareholders on an ad hoc basis. Although it’s unlikely to be a stock that will double in price in the next year or two, its steady performance, fair valuation and impressive dividend make OMF stock a buy.
After experiencing enormous volatility in the first quarter of 2020, VIAC stock is back on the path to normalcy. Still down 29% year to date, the stock has more than tripled from its 52-week lows in March. The early fears that live sports and the big revenues that come with them would be disappearing for Viacom proved to be truly overblown, and the fact that the company can comfortably pay its 3.3% dividend shows no serious trouble is on the horizon. It’s hard to ignore the broad spectrum of media brands in VIAC’s portfolio — CBS Television Network, the Showtime Networks and CBS Television Studios, to name a few — that will come as a benefit in future television programming and continued growth in its streaming services. Barclays upgraded Viacom in mid-October from “equal weight” to “overweight,” boosting the price target from $22 to $36 per share.
Penske Automotive Group (PAG)
The auto industry is notoriously cyclical, and in the first quarter of 2020, it began to look as if the cycle was moving the wrong way for industry investors. In the quarters since, auto-dealer Penske Automotive as well as major car manufacturers have fared far better than feared; in fact, PAG’s third-quarter results set a new high mark for the company. Cost-cutting efforts were key to the record earnings, allowing that money to trickle down to the bottom line. The company is able to comfortably pay its 3% dividend yield, using just 23% of its profits to pay the quarterly dividend.
CVS Health Corp. (CVS)
CVS is an essential part of the U.S. economy in the era of a health crisis. Not only will people need to keep getting their prescriptions throughout this period of social isolation and sheltering in place, but when a suitable vaccine is developed — and recent data from Pfizer’s (PFE) vaccine candidate indicates that day may nearly be here — its MinuteClinic locations will serve a vital role in immunizing the country. In its efforts to encourage health safety practices and have a strong presence in the fight against the pandemic, CVS recently launched an initiative called “Time for Care” in July, focused on reducing the spread of the virus. The retail health care company, which trades for 10.8 times earnings and pays a 3.1% dividend, might be undervalued and could pose a potential buying opportunity.
It’s certainly in vogue to be an asset-light business (and consumer, for that matter) these days. Rent-A-Center is a natural beneficiary of this trend, offering durable goods on a lease-to-own basis. From electronics and appliances to furniture and smartphones, cash-strapped consumers can lease rather than buy a number of items they might not otherwise be able to afford. Recent quarters have brought blockbuster growth for RCII. Total revenues increased to $712 million in the most recent quarter, or by 9.6% compared with the same period in 2019. E-commerce revenue grew 71% last quarter, and the company is seeing strong demand for home-related goods during the pandemic. Trading at an affordable price-earnings ratio around nine, RCII also pays a 3.8% dividend and has a manageable debt load.
Verizon Communications (VZ)
Noticing a trend in the best value stocks for 2020? Many of them offer goods or services that are either essential or bound to be in steady demand indefinitely. Telecom giant Verizon is the former. Cellular service, internet access and data have essentially been utilities for some time. Verizon and IBM (IBM) announced a new partnership in which they will be collaborating on 5G innovation. With the emphasis on working or learning from home to slow the spread of the virus, internet connection is more important than ever. According to the J.D. Power 2020 U.S. Wireless Network Quality Performance Study, the data analytics and consumer intelligence company found that Verizon boasted the highest-quality wireless network in five of six U.S. regions. As one of the elite providers of internet and cell service in the U.S., it’s hard to see any competitor putting Verizon out of business in the next several decades, and its 4.3% dividend and modest P/E ratio of 13.6 make the stock an attractive value.
LGI Homes (LGIH)
It’s not often that one of the best value stocks to buy is also on an incredible tear, but LGI Homes fits that description. Up about 50% in 2020, the homebuilder is reaping all the rewards of a housing market with multiple strong tailwinds: record-low interest rates and a dearth of housing supply. One useful measure of a value stock is called the price-earnings growth (PEG) ratio, which divides a company’s P/E ratio by its expected earnings growth going forward. A PEG ratio of less than one is typically considered to indicate its very attractive value, and with a P/E of 10 and expected earnings growth around 15% over the next five years, LGIH still looks conservatively valued after its 2020 rally.
The best value stocks to buy in 2020:
— OneMain Holdings (OMF)
— ViacomCBS (VIAC)
— Penske Automotive Group (PAG)
— CVS Health Corp. (CVS)
— Rent-A-Center (RCII)
— Verizon Communications (VZ)
— LGI Homes (LGIH)
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Update 11/09/20: This story was published at an earlier date and has been updated with new information.