In a slumping market, value stocks stand out as safer alternatives to risky growth names.
Growth stocks were a seemingly can’t-lose trade for the past five years. Companies with the fastest growth rates and most exciting future prospects enjoyed a tremendous run. However, as often happens in markets, traders got a little carried away. Growth stocks hit unsustainable levels in 2021 and have since tumbled. Now, investors are aggressively moving capital out of those growth industries and purchasing value stocks in more staid industries such as energy, banking and consumer staples. Given that this rotation has been under way for many months now, investors might think they’ve missed the best opportunities in this new value-led market. However, there are still a lot of great value stocks on sale including these top 10 picks for the rest of 2022.
Meta Platforms Inc. (ticker: META)
A few years ago, it would have seemed funny to consider Meta, or Facebook, to be a value stock. With shares of the Facebook parent now down by more than half from their all-time highs, however, Meta has fallen squarely into the value camp. Shares are trading for just 13 times earnings and 12 times forward earnings. Those earnings make their way through to the cash flow statement as well; Meta stock is selling for less than 12 times free cash flow. This would allow Meta to issue large dividends or buy back tons of its own stock if it so chose. For now, investors are furious with Meta’s leadership for investing so much in virtual reality and the metaverse. However, Meta CEO Mark Zuckerberg has made brilliant capital allocation decisions in the past. It seems premature to count out Meta’s new strategic direction already.
Valero Energy Corp. (VLO)
Valero is America’s largest independent refining company, operating 15 refining operations across North America. It currently is generating more than $130 billion in annual revenues. And for investors wondering why gas prices are so high, refining plays a key role in the current squeeze. America hasn’t built substantial new refining capacity since the 1970s, meanwhile several older units have shut down in recent years. This has left North America unable to process adequate quantities of raw crude oil, particularly of the lighter sweet crude that comes from the United States’ newer shale operations. Long story short, the refineries are earning record profits. This leaves Valero shares at less than 6 times forward earnings and offering a 3.7% dividend yield. That’s deep value in an industry that is more essential than ever amid the country’s gas crisis.
Exxon Mobil Corp. (XOM)
Exxon Mobil is North America’s largest energy company. The company has enjoyed a revival over the past year as oil and more recently natural gas prices have surged to near 10-year highs. On top of that, unlike many rivals, Exxon Mobil chose to retain its own refining and chemical plant capacity instead of offloading these facilities. This has proven to be a brilliant move, as refiners and the chemical industry are earning tremendous profits right now during the supply-constrained conditions that the economy is facing. In recent years, Exxon Mobil also continued investing in large new oil deposits, such as its offshore Guyana location, giving it much-needed new supply as the world faces an oil shortage. Long story short, Exxon Mobil has played its hand well and should enjoy a prosperous decade. Shares currently trade at less than 8 times forward earnings and offer a 4% dividend yield.
Intel Corp. (INTC)
Intel remains one of the world’s most important semiconductor companies, with annual revenues of nearly $80 billion. In recent years, investors gravitated to more aggressive rivals such as Advanced Micro Devices Inc. (AMD). However, while Intel fell out of favor, its core business remains as strong as ever. The company is an absolute free-cash-flow machine, and it enjoyed an uptick in business thanks to accelerated sales relating to work- and learn-at-home trends over the past two years. Intel’s massive size allows it to spend more than $15 billion per year on research and development while also offering a nearly 4% dividend yield. At 11 times forward earnings, Intel is cheap based on its current prospects. Additionally, given its investment in a variety of other fields such as self-driving vehicles, there are potential catalysts to unlock value outside of the core CPU and server chip businesses.
Citigroup Inc. (C)
Warren Buffett’s Berkshire Hathaway Inc. (BRK.A, BRK.B) has started buying shares of Citigroup. And it’s not a bad idea to follow his lead. Aside from being a legendary investor, Buffett is specifically known for skilled investments in the banking and insurance sectors. The man gets financial stocks. So, what has attracted him to Citigroup in particular? Probably its compelling value. Shares are selling for just 7 times forward earnings and offer a greater than 4% dividend yield. Citigroup shares are also, remarkably, trading at just half the company’s $90-per-share book value. Normally, a well-run bank trades for at least book value if not a premium. Citigroup won’t get back to book value or a more reasonable price-earnings ratio overnight, but shares should recover once sentiment around the economy picks back up. With Buffett leading the way, expect many value investors to snap up Citigroup shares going forward.
Global Payments Inc. (GPN)
Global Payments is a merchant acquirer that helps handle payments business for credit card companies such as Visa Inc. (V). Like everything related to payments, Global Payments stock has gotten thrashed over the past year. GPN stock was one of the worst performers in the entire S&P 500 last year, and it’s down another 17.5% year to date through July 11. And yet, the company’s actual results continue to impress. First-quarter earnings of $2.07 a share topped estimates and grew 14% year over year. Revenues also surged 8% versus the same period of 2021. Those are hardly the sort of numbers you expect for a company whose stock is in free fall. Meanwhile, shares are now trading for less than 12 times forward earnings, and analysts project more double-digit earnings growth in 2023 and 2024. Bottom line, the chaos in the payments sector has made Global Payments a bargain.
Sabre Corp. (SABR)
Sabre is one of three primary companies that operate software for airline ticketing. Sabre, along with Amadeus IT Group and Travelport Worldwide Ltd., control virtually 100% of the market for these services around the globe with the notable exception of China. Sabre operates in an attractive industry. Since there are so few competitors, each firm can maintain high profit margins and doesn’t face much technological disruption. As things stand now, Sabre and its peers effectively get to charge a small tax on most airline ticket purchases around the world. While Sabre ran large operating losses since 2020, things are turning the corner now amid a boom in travel demand this summer. 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 more than double the closing price of $6.34 on July 11.
Altice USA Inc. (ATUS)
Altice is a midsize cable TV operator. Shares have gotten absolutely shredded recently, falling from a high of $37 in 2021 to around $9. The reasons why aren’t hard to see. The pandemic-driven incremental boost in demand for cable and internet services has receded. Altice also has an absolute mountain of debt. With interest rates going up and a recession quite possibly about to start, it’s understandable why investors are nervous. However, there are strong positives. Cable and particularly internet are resilient industries that should hold up in a recession. And while Altice has a ton of debt, it also generates prodigious cash flows. And shares currently go for less than seven times forward earnings. Any sort of upturn in subscriber figures or relief on the interest rate and recession front could cause ATUS stock to recover much of its losses over the next year.
Micron Technology Inc. (MU)
Micron is one of the dominant players in the semiconductor industry specifically focused on data storage and memory solutions. Historically, memory has been a brutally cyclical industry as its fortunes are tied to demand for fast-moving consumer electronics products such as cameras, tablets and smartphones. However, the memory industry has now evolved. Many weaker players have consolidated or exited the industry entirely. Meanwhile, demand for memory has grown more stable as it goes into more varied applications. Long story short, the remaining memory and storage players like Micron should enjoy a much brighter future. Regardless, investors are worried about the past repeating, and thus have driven Micron shares down 40% from their 52-week highs. At this price, Micron sells for less than 10 times forward earnings and can buy back a ton of stock at an attractive valuation if it so wishes.
JPMorgan Chase & Co. (JPM)
JPMorgan Chase is widely considered to be the best managed of the too-big-to-fail American banks. And, until recently at least, that quality came at a price. JPMorgan often traded at a fat premium to its peer banks to reflect its position as a superior operator. With the whole banking sector slumping in 2022 despite rising interest rates, the risk/reward calculus has improved dramatically for JPMorgan Chase stock. Shares, which had previously been going for as much as 14 times earnings, are now selling at less than 9 times earnings. The dividend yield is up to 3.5%. And since JPMorgan Chase is well-capitalized, it has the financial flexibility to buy back stock or invest in new business ventures during this current downturn. JPMorgan Chase shares have lost about a third of their value from their 52-week-highs, putting this quality operation firmly in the value range.
10 of the best value stocks to buy for 2022:
— Meta Platforms Inc. (META)
— Valero Energy Corp. (VLO)
— Exxon Mobil Corp. (XOM)
— Intel Corp. (INTC)
— Citigroup Inc. (C)
— Global Payments Inc. (GPN)
— Sabre Corp. (SABR)
— Altice USA Inc. (ATUS)
— Micron Technology Inc. (MU)
— JPMorgan Chase & Co. (JPM)
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Update 07/12/22: This story was published at an earlier date and has been updated with new information.