With growth stocks struggling, try these value stocks instead.
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. As often happens in markets, traders got a little carried away. Growth stocks hit unsustainable levels in 2021 and have since tumbled. This year, there has been a big rotation to formerly unloved sectors such as energy, financials and utilities. Some former value stocks have appreciated enough to stop being obvious values as investors gravitate to defensive holdings. However, there are plenty of solid value stocks left in this market, including these 10 that have improving prospects over the next year.
Verizon Communications Inc. (ticker: VZ)
Verizon has been a value stock for years now and has arguably tipped deeper into value territory following its latest slide. With shares closing at $42.76 on Sept. 12, the stock is at its lowest point in a decade. There are some legitimate reasons for concern. The mobile industry has seen a general slowdown as pandemic-driven tail winds fade. T-Mobile US Inc. (TMUS) is proving to be an especially strong competitor within the telecom market. And 5G rollout hasn’t led to the sort of positive momentum that analysts had previously expected. Regardless, bears are overplaying the negatives. Verizon’s profitability is stable, and stable is good enough when a stock is trading for less than 8 times forward earnings. With the share price dip, Verizon stock now has a high yield, offering more than 6%. And the company, despite the falling share price, just gave investors another small dividend increase in September.
Comcast Corp. (CMCSA)
Comcast is under pressure on multiple fronts. Cable makes up more than half of Comcast’s revenues, and it’s been under serious fire from cord-cutting in recent years. Comcast has additional concerns thanks to its media business. Streaming television has seemingly become a race to the bottom as promotional pricing and huge content budgets have made it hard to churn out a profit for a while now. Over the long term, however, streaming will consolidate. Comcast’s brands such as NBC should make it one of the more valuable players in that space. The company’s theme parks are also a strong asset that give it additional diversification. Investors may have gotten too optimistic about how much opportunity there was for Comcast in the past. However, it’s still a great cash flow machine now selling at a far more reasonable entry point.
Qualcomm Inc. (QCOM)
Qualcomm is a leader in the semiconductor space as it relates to smartphone connectivity. Qualcomm built its business over the years through licensing 3G, 4G and now 5G networking patents. There’s been a great deal of consternation regarding this licensing business lately, as Qualcomm has been involved in numerous lawsuits to defend its patent rights. But there’s more to the story. The company also designs its own chips and has done great business with its Snapdragon platform that it sells to smartphone makers such as Samsung Electronics Co. Ltd. (SSNLF). Thanks to the sell-off in semiconductor stocks, QCOM stock is now going for less than 11 times forward earnings. Morningstar analyst Abhinav Davuluri agrees there is value in Qualcomm stock today. Davuluri has a price target of $163 compared to Qualcomm’s Sept. 12 closing price of $133.
JPMorgan Chase & Co. (JPM)
JPMorgan Chase is widely considered to be the best-managed of the too-big-to-fail American banks. Usually, that quality came at a price. JPMorgan often traded at a fat premium to its peers to reflect its position as a superior operator. That’s changed in 2022. As investors fear a slowdown in the economy and housing market, along with a drop in investment banking revenues, JPM stock has dropped more than 25% this year as of Sept. 12. With that, the bank’s forward earnings ratio is down to 9.4, and the dividend yield is up to 3.4%. And since JPMorgan Chase is well capitalized, it has the financial flexibility to buy back stock or invest in new business ventures during the current downturn. JPMorgan Chase should be able to consolidate its market position and come out stronger once the economic outlook brightens.
Intel Corp. (INTC)
Intel remains one of the world’s most important semiconductor companies, with annual revenues of $79 billion in 2021. In recent years, investors gravitated to more aggressive rivals such as Advanced Micro Devices Inc. (AMD). However, Intel remains a dominant player both in consumer computing chips and data center and server products. Intel shares have plunged this year as profitability is down significantly after a fantastic 2021. The long-term outlook remains strong, though. Intel’s massive size allows it to spend more than $15 billion per year on research and development while also offering a 4.8% dividend yield. At 11 times forward earnings, Intel is cheap based on its current prospects. Intel’s upcoming initial public offering of self-driving business Mobileye helps validate the value in the company’s other investments as well.
IBM Corp. (IBM)
IBM long ago transitioned from being a growth company to a staid value name with its best days seemingly behind it. However, investors holding that view might be missing an opportunity. IBM spun off Kyndryl Holdings Inc. (KD) last year, getting rid of its slowest-moving operations. Meanwhile, the core business has a lot more staying power than most people realize. IBM has built deep inroads in specialized markets such as financial services, airlines and government operations, where reliability and security matter more than the latest technological developments. IBM’s consulting services continue to serve as a central hub from which to cross-sell its various product offerings that include fresher products such as cloud hosting and Red Hat’s specialized operating system services. IBM sells for 13 times forward earnings and offers a 5% dividend yield, giving investors a great income stream while waiting for market sentiment to improve.
Goldman Sachs Group Inc. (GS)
Goldman Sachs stock, like JPMorgan, has sold off in 2022. That’s in large part due to concerns that investment banking activity will die down in areas such as initial public offering underwriting due to difficult market conditions. That’s a valid fear. On the other hand, Goldman Sachs has historically been second-to-none in making shrewd trading and capital allocation decisions during volatile markets. To that point, Goldman positioned itself as the best of the major banks during the 2008 financial crisis. Goldman Sachs has done well in both good and bad economic cycles, leading it to steadily grow its tangible book value dating back to its IPO more than 20 years ago. Shares are currently at 8.5 times forward earnings while offering a 3% dividend yield. That’s a fine price for this leading investment bank.
Citigroup Inc. (C)
Warren Buffett’s Berkshire Hathaway Inc. (BRK.A, BRK.B) started buying shares of Citigroup earlier this year, 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. What might attract Buffett to Citigroup today? Probably its compelling value. Shares are selling for just 7.4 times forward earnings and offer a 4.2% dividend yield. Citigroup shares are also, remarkably, trading at about half the company’s $93-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 the valuation gap should start to close as sentiment improves. With Buffett leading the way, expect many value investors to snap up Citigroup shares going forward.
GlaxoSmithKline PLC (GSK)
GlaxoSmithKline is a leading pharmaceutical company. The business is broadly diversified and not overly dependent on any one product or illness category. GSK is a leader in products related to HIV, respiratory illnesses and vaccines among others. The company’s stock is down by nearly a third this year, with the majority of that drop coming this summer. That’s due to product liability concerns about heartburn treatment Zantac. GSK sold off its stake in Zantac many years ago, however it may still face significant legal liability as thousands of personal injury claims have surfaced around the drug. Investors are taking a sell-first-and-ask-questions-later approach to the legal situation. However, Morningstar’s Damien Conover sees huge value in GSK stock today. He believes the lawsuit concerns around Zantac are overblown and that shares will recover their recent losses. Conover has a $54 price target for GSK share, implying 66% upside from its Sept. 12 closing price of $32.45.
Global Payments Inc. (GPN)
Global Payments is a merchant acquirer that helps facilitate business between merchants and 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 fractionally this year as well. And yet, the company’s actual results continue to impress. Second-quarter earnings of $2.36 per share topped estimates and grew 16% year over year. Revenues also grew 6% versus the same period in 2021 and topped expectations. Those are hardly the sort of numbers you expect for a stock that lost value. Meanwhile, shares are now trading for 12.2 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.
10 best value stocks to buy for 2022:
— Verizon Communications Inc. (VZ)
— Comcast Corp. (CMCSA)
— Qualcomm Inc. (QCOM)
— JPMorgan Chase & Co. (JPM)
— Intel Corp. (INTC)
— IBM Corp. (IBM)
— Goldman Sachs Group Inc. (GS)
— Citigroup Inc. (C)
— GlaxoSmithKline PLC (GSK)
— Global Payments Inc. (GPN)
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Update 09/13/22: This story was previously published at an earlier date and has been updated with new information.