Investors are pivoting to value stocks as the economy shifts.
For the first time in many years, value stocks have outperformed growth stocks so far in 2021. Growth stock valuations are historically high and some investors concerned about the impact of inflation and rising interest rates are turning to the relative safety of value stocks. Investors and analysts are even drawing comparisons between today’s market climate and the dot-com bubble of the late 1990s. In the early 2000s, value stocks in the financial, energy and real estate markets left many high-growth tech stocks in the dust. Here are seven of the best value stocks to buy in 2021.
Viatris (ticker: VTRS)
Viatris is a global health care company created by the late-2020 merger of Mylan and Upjohn, the former off-patent drug division of Pfizer (PFE). Viatris shares may be undervalued for now due to investor uncertainty surrounding Upjohn integration. Viatris also faces near-term merger costs required to unlock the $1 billion in synergies the company expects over the next four years. Viatris is off to a rough start to 2021, down around 28% year to date. However, with the stock priced at just 3.7 times forward earnings, the sell-off may be an attractive entry point for long-term value investors.
Lincoln National Corp. (LNC)
Lincoln National is a diversified life insurance company. After a down year in 2020, the stock is already up more than 30% in 2021. Even in an extremely difficult environment, Lincoln National reported $499 million in net income and 1% revenue growth last year. Low interest rates are a headwind for life insurance earnings, but the stock has rallied as expectations for rising rates have grown in 2021. Even after its year-to-date rally, Lincoln National shares trade at just six times projected forward earnings, and the stock also pays investors a 2.6% dividend for their patience.
NRG Energy (NRG)
NRG Energy is an integrated independent U.S. power producer that serves 3 million retail customers in Texas and the Northeast. NRG shares took a 15% hit in March after the company said winter storm Uri, which slammed Texas in February, could cost NRG $750 million. The company said its efforts to deleverage its balance sheet and upgrade its credit to investment-grade status might be pushed back until 2022. Following the sell-off, NRG shares are now up just 4.7% overall in 2021, and the stock trades at just 6.6 times forward earnings estimates.
AbbVie is a pharmaceutical company focused on immunology, virology and oncology. One reason AbbVie may trade at such a cheap valuation is because 40% of the company’s total revenue came from Humira in 2020, and the autoimmune disease drug comes off patent in 2023. Generic competition for Humira will certainly sting in 2023, but AbbVie has other potential growth candidates in its pipeline, including Rinvoq and Skyrizi. Humira-related downside may be limited given ABBV stock already trades at just 7.8 times forward earnings. AbbVie also pays a 4.8% dividend — the highest on this list.
PulteGroup is one of the largest homebuilders in the U.S. The stock offers investors a very rare combination of both momentum and value. Historically low mortgage rates have created a booming U.S. housing market, which sent PulteGroup’s stock soaring 27% so far in 2021 and 120% overall in the past year. The company reported impressive 28.9% earnings-per-share growth and 8% revenue growth in 2020. Analysts project 23.4% revenue growth this year. Even after its big run, PHM shares still trade at a very attractive forward earnings multiple of just 7.9.
Bristol-Myers Squibb Co. (BMY)
Bristol-Myers Squibb is a biopharmaceutical company that specializes in oncology, immunology and cardiovascular therapeutics. Unlike many other value stocks, Bristol-Myers has lagged behind the S&P 500 in 2021, gaining just 7%. Bristol-Myers reported 63% revenue growth in 2020 but also generated a $9 billion net loss. Analysts expect that loss to flip to a big profit in 2021 after the company gained approval for additional indications for cancer drug Opdivo. Bristol-Myers is also taking steps to reduce its leverage following its $74 billion buyout of Celgene in 2019. BMY stock trades at just eight times projected forward earnings.
Synchrony Financial (SYF)
Synchrony Financial is a financial services company that is the largest U.S. private label credit card provider. Financial sector stocks have performed extremely well so far in 2021, and Synchrony shares are up 160% in the past 12 months. Unfortunately, Synchrony reported in March that it lost The Gap (GPS) — one of its largest customers. Fortunately, Synchrony management said the Gap loss will be EPS-neutral and will free up about $1 billion for share buybacks. SYF stock trades at just eight times forward earnings, and it could make for a great economic rebound investment in 2021.
Seven best value stocks to buy in 2021:
— Viatris (VTRS)
— Lincoln National Corp. (LNC)
— NRG Energy (NRG)
— AbbVie (ABBV)
— PulteGroup (PHM)
— Bristol-Myers Squibb Co. (BMY)
— Synchrony Financial (SYF)
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Update 04/19/21: This story was published at an earlier date and has been updated with new information.