Find real value stocks and avoid value traps with these 10 stocks.
There’s no shortage of value stocks in the market right now. With the major indexes posting their largest losses since 2008, plenty of stocks have come down dramatically over the past year. But investors must be careful. Many apparent bargains may turn out to be value traps, particularly if a broad economic recession hits in 2023. The surge in interest rates is a real game-changer and will disrupt many formerly stable companies. With that in mind, these 10 value stocks have what it takes to prosper despite the changing economic times. In addition, all of these picks trade for 10 times earnings or less. Here are the top value stocks to buy for the rest of 2022.
Qualcomm Inc. (ticker: QCOM)
Qualcomm is a technology company that develops products for the mobile communications market. It became successful thanks to its patents for 3G and 4G semiconductor technology. In more recent years, Qualcomm has helped spearhead the adoption of 5G mobile networks. The company has also developed its own high-end chips, such as the Snapdragon platform that powers many smartphones and tablets. Qualcomm has been performing well in recent years, despite numerous high-profile disputes and lawsuits around its telephony patents. However, Qualcomm’s earnings surge has now slowed down. Due to rising smartphone inventories and renewed COVID-19 lockdowns, earnings now appear set to slow heading into 2023. With shares down 38.5% this year through Nov. 8, however, arguably investors have now overreacted. QCOM stock goes for 8.8 times forward earnings and offers a nearly 2.7% dividend yield.
Verizon Communications Inc. (VZ)
The telecom industry is having a rough year. Investors tend to own communications stocks for their steady cash flows and high dividend yields. Thanks to soaring inflation, however, people are now demanding higher dividends from their safe defensive stocks. That, plus rising competition among mobile carriers has led to a dramatic sell-off for major players, including Verizon. Shares of Verizon are down 27.1% through Nov. 8. With that decline, VZ stock is now selling for just 7.5 times forward earnings while offering a 6.9% dividend yield. These are practically the best valuation levels on both metrics for Verizon over the past decade. The weaker economy may cause some slowdown in the industry, but ultimately people still need their smartphone plans, and Verizon is better suited than most firms to ride out an economic slowdown.
Citigroup Inc. (C)
Citigroup is far from the world’s best-run bank. It has had numerous operational problems and reputational setbacks in recent years. At some price, however, investors can find merit in most companies, and there is such a case for Citigroup. Shares are going for 7.3 times forward earnings and offer a 4.4% dividend yield. With shares at just half of book value, there is a lot of room for Citigroup’s share price to appreciate on any positive operational developments or improvements in sentiment. Arguably the most famous of all value investors, Warren Buffett has taken a liking to Citigroup. His Berkshire Hathaway Inc. (BRK.A, BRK.B) has become a major shareholder in Citigroup this year. Given Buffett’s impressive track record with banking investments in the past, investors should consider following his lead. Citigroup has issues, but it also has a lot of promise — particularly in a higher interest rate environment.
Valero Energy Corp. (VLO)
Valero is the largest independent refining company in the U.S., and it operates more than a dozen facilities across North America. While refining is part of the energy space, its economics are much different than other parts of the industry. Refiners make their money on the difference in prices between crude oil and processed goods such as gasoline, jet fuel, asphalt and heating oil. Over the past year, the spread between oil and refined goods has soared to record highs, lifting profits for firms like Valero to previously unseen levels. As a result, VLO stock is currently selling at an astounding 5.6 times earnings. Investors might rightly question how durable these earnings will be. However, earnings shouldn’t fall too far. Due to shortages in global crude supplies and complications from the loss of Russian production, the oil market will likely remain tight, which offers ongoing opportunities for Valero’s top-notch refining assets.
Canadian Natural Resources Ltd. (CNQ)
Canadian Natural Resources is one of the largest energy companies in Canada. The company was one of the early players in the Alberta oil sands and has built its business with additional acquisitions over the years. Oil sands fell out of favor in the 2010s due to environmental concerns and a tough regulatory environment in Canada. With a surge in oil prices and geopolitical problems in Europe, however, Alberta energy production has regained much of its prior appeal. One other additional benefit is that the oil sands produce “heavy” crude oil, which has been in short supply for American refineries in recent months. Throw in high oil prices in general, and Canadian Natural Resources is in a perfect situation. Meanwhile, shares are going for just 6.1 times forward earnings. Shares pay a 3.7% dividend yield, and management is buying back stock as well.
Walgreens Boots Alliance Inc. (WBA)
Pharmacies had a big moment in 2020, as people turned to companies such as Walgreens for vital tests, medicines and vaccines. That moment has now faded, and the pharmacy skeptics are back at it again. In their view, it is a struggling industry because the retail side faces competitive pressures from grocery stores, delivery services and the internet. And Amazon.com Inc. (AMZN) and other Big Tech companies may be making a bigger splash in consumer health care as well. Trouble for Walgreens, right? Not so fast. Many people like seeing a pharmacist in person, and there are numerous regulatory hurdles to clear before a business can sell prescription drugs over the internet. Pharmacies will have a role for many years to come. Walgreens is also innovating, adding more financial services at its stores and layering on more differentiated health offerings as well. Meanwhile, shares are a value at just 7.7 times earnings and offer a 5% dividend yield.
Dow Inc. (DOW)
Dow is a large American chemical company that came about from a series of mergers with and divestments from DuPont de Nemours Inc. (DD). Dow has competitive advantages from its large size and numerous proprietary products. The investment case for Dow is simple: It’s a value stock that is already pricing in a massive economic slowdown. Shares are trading for 6.4 times earnings and offer a 5.6% dividend yield. And operating results aren’t that bad. Revenues were down just 5% last quarter compared with a year ago, and much of that decline was due to currency effects rather than an actual drop in demand. Meanwhile, Dow is an absolute cash flow machine. It generated $1.5 billion of free cash flow in the third quarter alone and returned $1.3 billion of that to shareholders via the generous dividend and a large share buyback program.
Eastman Chemical Co. (EMN)
Eastman Chemical is a specialty chemical company. It emerged as a spinoff from photography company Eastman Kodak Co. (KODK) and has gone on to be more enduring than its former parent. Many investors look down on the chemical industry as being a commodity business with low profit margins. That’s often true, but Eastman has invested significant resources in developing proprietary products to build more of an operational moat. In addition, it benefits from operating primarily in the U.S., which currently has much lower energy prices than Europe and Asia. Eastman has dropped by about a third so far in 2022. This has pushed shares to less than 10 times forward earnings while increasing the dividend yield to 3.7%. The company has been buying back stock as well. A recession may slow the company’s earnings for a bit, but this is a much better quality firm than the market realizes.
Old Republic International Corp. (ORI)
Old Republic is an insurer that operates two primary lines of insurance: general commercial and title insurance. The company’s stock has been vulnerable in 2022 due to the title exposure. Title insurance is necessary to get a mortgage when buying or refinancing a house in the U.S. With interest rates soaring, the refinancing market has dried up, and new mortgages are likely to slide as well, given sharply higher mortgage rates. That weakness is not permanent though. Interest rates and housing move in cycles, and title insurance will be back in high demand in due time. Meanwhile, Old Republic has the other half of its insurance operations to provide steadier results and smooth out the swings on the title side. Old Republic is a dividend aristocrat, meaning it has hiked its dividend for more than 25 consecutive years. The company made it through the 2008 crisis without incident, so it should be fine now.
New York Community Bancorp Inc. (NYCB)
New York Community Bancorp is a regional bank which has historically served the greater New York City metropolitan area. It has a unique business model in that its loan book is reserved primarily for multifamily housing. It also has a low loan-to-value ratio, generally below 60%. This means that if an apartment building is worth $10 million, for example, New York Community would only lend up to $6 million against that collateral. This insulates the bank from losses, as the building would have to drop 40% in value before the bank’s equity would be in danger. The bank hardly suffered any loan losses even in the 2008 financial crisis and should be fine now. Shares are currently offering a 7.6% dividend yield. On top of that, regulators just approved the bank’s acquisition of Flagstar Bancorp Inc. (FBC), which should give New York Community Bancorp a boost.
10 best value stocks to buy now:
— Qualcomm Inc. (QCOM)
— Verizon Communications Inc. (VZ)
— Citigroup Inc. (C)
— Valero Energy Corp. (VLO)
— Canadian Natural Resources Ltd. (CNQ)
— Walgreens Boots Alliance Inc. (WBA)
— Dow Inc. (DOW) Eastman Chemical Co. (EMN)
— Old Republic International Corp. (ORI)
— New York Community Bancorp Inc. (NYCB)
More from U.S. News
7 Best Cheap Dividend Stocks Under $10
9 Short Squeeze Stocks That Could Take Off in November
10 Best Value Stocks to Buy for 2022 originally appeared on usnews.com
Update 11/09/22: This story was published at an earlier date and has been updated with new information.
