In a slumping market, value stocks stand out as safer alternatives to risky growth names.
The stock market is in quite a funk. The S&P 500 is struggling to hold onto the 4,000 level, and is threatening to slide into official bear market territory. It’s been a rough ride, and with the Federal Reserve set for more rate hikes, there’s no indication that the correction is ending just yet. However, the continued selling has created more and more opportunities to buy companies at attractive prices. Many people have complained about the lack of true value stocks in recent years. However, there are now plenty of quality options to pick from heading into this summer. Here are 10 of the best value stocks to buy.
Anheuser-Busch InBev SA (ticker: BUD)
Beer giant Anheuser-Busch InBev has returned to growth. After years of struggling to grow the business organically, Anheuser-Busch is picking up momentum. In the first quarter, the company grew revenues 11%, which was powered by 8% price increases and a 3% uptick in volumes sold. This shows the strength of the company in terms of being able to handle inflation. Despite the competitive pressure from craft brewers and other macrobrewers, Anheuser-Busch is holding its ground in an unsettled economic situation. With sales on the rise, earnings should move up as well. As things stand today, BUD stock is at just 17 times estimated 2022 earnings. Given the rise in other consumer staples companies lately, Anheuser-Busch stands out as a relative value. Morningstar’s Philip Gorham sees fair value of $90 per share, which leaves more than 60% upside for BUD stock from its $54.66 close on May 10.
Wynn Resorts Ltd. (WYNN)
Many value stocks have an obvious problem or headwind causing shares to be discounted. For gaming company Wynn Resorts, the issue is its exposure to Macao. Wynn has invested heavily in that region and thus has ended up remaining under pressure due to COVID-19. China has maintained more rigorous COVID restrictions than many other nations and thus there is not a clear timeline for when Wynn’s key earning assets will be able to get back to normal. For bulls on Asian consumers, or for people looking for a remaining economic reopening play, Wynn could be a good bet. The company historically often earned more than $5 per share annually prior to the pandemic, meaning shares would be going for just 12 times earnings if Wynn could regain pre-COVID levels of profitability. Morningstar’s Dan Wasiolek has a $109 price target for Wynn, meaning that shares are selling at a huge discount today around the $60 level.
Altice USA Inc. (ATUS)
Altice USA has a few major concerns. For one, the company has a lot of debt, and for another, analysts are generally skeptical of the company’s capital allocation decisions. These worries have helped make ATUS one of the best value stocks to buy now. Altice USA is a leading player in the cable industry. Cable shares have come under tremendous pressure this year as subscriber growth has slowed, or in some cases, turned outright negative. However, these assets still tend to throw off tons of cash flow and deliver an essential service to consumers. Altice is investing heavily to upgrade much of its network to fiber rather than sticking with regular cable. If successful, this could turn Altice’s fortunes around. Morningstar’s Michael Hodel has a $28 fair value for Altice USA, which would represent a nearly threefold increase from Altice’s May 10 close of $10.01. A move even part of the way back to $28 would be rewarding.
Citigroup Inc. (C)
Banks continue to slide despite the rise in interest rates. Normally, investors expect bank stocks to rally on higher interest rates as they can lead to stronger profit margins on lending. However, credit risk and recession concerns appear to be outweighing the positives at the moment. Citigroup in particular has drifted under the $50 mark and its dividend yield has crept above the 4% threshold. Incredibly enough, shares are going for just seven times this year’s estimated earnings. It’s also selling at just 0.5 times book value. Historically, it’s generally been a good investment to buy large American banks at any meaningful discount to book value. Morningstar’s Eric Compton has a $78 price target for Citigroup, meaning that shares offer 60% upside from May 10’s $48.75 close.
Global Payments Inc. (GPN)
The payments sector is a wasteland right now. Everything from fintech names such as PayPal Holdings Inc. (PYPL) through to the traditional processors and merchant acquirers have gotten smoked. Global Payments is arguably the most compelling bargain out of a sector where deals abound. Global Payments has traditionally grown both organically and through shrewd acquisitions. This growth has continued in the current economic environment. Analysts see revenues rising 9% and earnings jumping 17% for the firm in 2022. Shares trade at just 12 times forward earnings. Despite the solid growth, GPN stock is down 40% over the past 12 months. Nothing specific to Global Payments’ business could justify this steep of a decline. Morningstar’s Brett Horn maintains a $186 fair value target for Global Payments, which means the May 10 closing price of $118.93 is quite a steal.
Sabre Corp. (SABR)
Sabre is one of three primary companies that operate software for airline ticketing. Sabre, along with Amadeus IT Group (AMADY) and Travelport Worldwide Ltd. (TVPT), control virtually 100% of the market for these services around the globe with China being the only market they don’t dominate. Generally, it’s attractive to invest in oligopoly industries with little potential for new competition. Sabre, and its peers, effectively get to charge a small tax on most airline ticket purchases around the world. Obviously, business ground to a halt during the pandemic. As global airline traffic continues to pick back up, however, Sabre should be able to recover. For reference, the stock traded north of $20 prior to the pandemic. Morningstar’s Dan Wasiolek has a $15 fair value target for Sabre stock, which is nearly double the closing price of $7.61 on May 10.
Rocket Cos. Inc. (RKT)
Rocket Companies is primarily a mortgage originator and servicer and it is notable for being an entirely digital operation. Rocket has grown with tremendous speed. Management successfully led the firm to becoming the largest company in the industry. The company enjoyed an historic boom in 2020 and 2021 as the combination of low interest rates and a sizzling housing market led to record demand for mortgages. Companies like Rocket profit from both new mortgages and refinancing transactions, so low interest rates are highly beneficial to Rocket. With rates going the other way and analysts worrying about a housing market slowdown, traders fear the worst for Rocket. And sure, 2022 and 2023 are likely to be poor. However, there’s arguably plenty of franchise value in Rocket once the mortgage market turns back up. Morningstar’s Michael Miller has fair value for Rocket at $19 per share, a sharp premium compared to the $7.81 closing price on May 10.
Adobe Systems Inc. (ADBE)
Digital media, publishing and advertising software company Abode is off to a rough start in 2022, with shares down 30% year to date. Adobe’s services tend to be sticky and the company shouldn’t see much slowdown in consumer demand even as the tech sector slows. Adobe wasn’t just a work-from-home trade. The company has strong secular drivers to power further growth, yet shares are caught up in the industry-wide sell-off. Remarkably enough, Adobe shares are selling for just 29 times projected 2022 earnings. That may not be a value in a traditional sense, but it’s awfully cheap for a top-tier software company that is continuing to grow revenues at a double-digit rate. For investors looking to take advantage of the software slump, Adobe is one to watch. Morningstar’s Dan Romanoff pegs Adobe’s fair value at $615 per share, leaving more than 50% upside from Adobe’s May 10 close at $393.03.
Zimmer Biomet Holdings Inc. (ZBH)
Zimmer Biomet is a leading medical device company. It is known for things such as hip- and knee-replacement products. The company, like other medical device makers, saw a sharp slowdown in business during the pandemic. That came about because many people delayed elective surgeries, and some hospitals reserved beds for COVID-19 patients instead of surgery patients. Medical device companies are springing back to life now, however, with ZBH revenues up 7% year over year on a constant-currency basis in its most recent quarter. While business is improving, medical device stocks themselves haven’t yet enjoyed a similar recovery. Zimmer shares continue to trade near their 52-week lows and go for just 17 times this year’s projected earnings. Morningstar’s Debbie Wang puts fair value at $175, leaving more than 50% upside from its $114.17 close on May 10.
Grupo Televisa SAB (TV)
Historically, Televisa was one of Mexico and Latin America’s largest producers of Spanish-language media content. Televisa recently merged its media assets with Univision. Following that deal, investors are increasingly concentrating on Televisa’s cable and broadband assets. Mexico remains an attractive market for these sorts of holdings, given the emerging middle class and strong demographics there. Unlike in the U.S., where cable subscriber numbers have stalled out, Televisa continues to grow its business; it has added new net subscribers for 19 straight quarters. Televisa is not expected to generate much earnings per share in 2022. However, earnings are projected to rocket higher in 2023. Morningstar’s Neil Macker believes Televisa stock is worth $14 per share. That’s a 74% premium to the $8.06 closing price on May 10.
10 best value stocks to buy for 2022:
— Anheuser-Busch InBev SA (BUD)
— Wynn Resorts Ltd. (WYNN)
— Altice USA Inc. (ATUS)
— Citigroup Inc. (C)
— Global Payments Inc. (GPN)
— Sabre Corp. (SABR)
— Rocket Cos. Inc. (RKT)
— Adobe Systems Inc. (ADBE)
— Zimmer Biomet Holdings Inc. (ZBH)
— Grupo Televisa SAB (TV)
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Update 05/11/22: This story was published at an earlier date and has been updated with new information.