The stock market is delivering sizzling returns in 2023. Growth stocks have regained momentum and companies in high-flying industries such as semiconductors are reaching new all-time highs. However, the valuations in a number of these hot names are getting rather stretched. As the market reminded folks in 2022, chasing stocks at high prices doesn’t always turn out well.
For investors wanting to put money to work in a less aggressive manner, there are still compelling value stocks out there today. These companies have strong earnings and in many cases pay large dividends as well. All 10 of these leading value stocks are on sale for 16 times forward earnings or less. As such, these firms should be safe havens even if the current market rally reverses itself.
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Here are the 10 best value stocks to buy for the rest of 2023:
— Shell PLC (ticker: SHEL)
— Toronto Dominion Bank (TD)
— Exxon Mobil Corp. (XOM)
— Pfizer Inc. (PFE)
— Johnson & Johnson (JNJ)
— Wells Fargo & Co. (WFC)
— Verizon Communications Inc. (VZ)
— International Business Machines Corp. (IBM)
— Black Hills Corp. (BKH)
— Molson Coors Beverage Co. (TAP)
Shell PLC (SHEL)
Shell is one of Europe’s largest integrated oil and gas companies. It’s known for being a leader in the move toward renewable energy. In addition to green power generation, it has moved to the forefront in building out electric vehicle charging facilities and related service stations and convenience stores. The company believes its consumer focus will allow it to seamlessly transition from oil and gas to clean energy, with Shell aiming to be carbon-neutral by 2050. For now, Shell continues to thrive off its oil, gas and chemicals business, which generates more than 75% of profits and has seen profitability rise as oil prices have moved up from the lows of a few years ago. Shares trade for less than eight times forward earnings and offer a reasonable 3.7% dividend yield.
Toronto Dominion Bank (TD)
Toronto Dominion Bank is one of Canada’s dominant banking franchises. It has extensive operations in both retail and investment banking, and it has also expanded into the United States. Investors have had Canadian banks in the crossfire, both due to the banking industry’s issues as a whole and specific worries around the state of the Canadian housing market. On the latter point, bears have been predicting a Canadian housing crash for more than a decade — so far to little avail. The Canadian government insures most mortgages in Canada, greatly reducing risk to TD. Of note, TD is one of the largest shareholders of leading broker Charles Schwab Corp. (SCHW), which should benefit TD as Charles Schwab stock recovers from its own sharp swoon in 2023. Simply put, TD is a well-run and strongly diversified bank now offering a solid 4.4% dividend yield.
Exxon Mobil Corp. (XOM)
Exxon Mobil is a massive integrated oil and gas giant. In addition to its oil production, Exxon has a big business in related fields such as refining and chemicals that have helped smooth out the company’s results and insulate it from oil price shocks. The company struck gold with its audacious investments in Guyana, discovering one of the largest new oil fields in many years. Combine that with a more favorable oil price environment and XOM stock has rallied sharply over the past few years.
The company just announced its next big move with a planned $4.9 billion acquisition of Denbury Inc. (DEN). This will make Exxon the largest player in North American carbon storage and transmission. There appears to be significant market demand for carbon sequestration services, and Exxon should be able to get in on the ground floor as this niche starts to take off. XOM stock has dipped over the past quarter, setting up a solid entry point today. The stock currently pays a 3.6% dividend.
Pfizer Inc. (PFE)
Pharmaceutical giant Pfizer was trading for around $40 per share prior to the onset of COVID-19. Today, the stock is down slightly from that pre-pandemic level. This is a surprising turn of events, given that Pfizer saw an absolute boom in business related to its COVID-19 vaccine. Investors are understandably selling off pandemic-related stocks as those revenue streams dry up.
That said, Pfizer’s sell-off has become a severe overreaction. In 2019, Pfizer generated $41 billion in revenue. Analysts project the firm to earn around $68 billion in sales in both 2023 and 2024, respectively. That is down from its $100 billion top-line figure in 2022, but it’s still a far larger number than where Pfizer was a few years ago. In other words, Pfizer was able to convert much of its recent successes into launching new products and growth avenues that have made the company more profitable going forward. Shares now sell for just 11 times forward earnings and pay a 4.5% dividend yield.
[SEE: 7 of the Best High-Dividend ETFs.]
Johnson & Johnson (JNJ)
Like Pfizer, pharmaceutical and medical devices giant Johnson & Johnson has been stuck in a downturn. Johnson & Johnson shares have fallen in 2023, despite the rallying market. Given JNJ is still one of the most venerable blue-chip stocks on Wall Street, this sell-off offers an attractive buying opportunity.
Investors have found a variety of reasons to shun J&J. The company faces legal liabilities from its talc products. The medical device business has faced lingering disruptions from the pandemic. And J&J’s spinoff of consumer wellness division Kenvue Inc. (KVUE) has caused some folks to reassess their view of the overall company. However, these concerns should clear up with time, and the company’s Kenvue separation is already starting to yield results: On July 20, Johnson & Johnson Chief Financial Officer Joseph Wolk said the company would engage in a “split-off” of Kenvue “as early as the coming days”, allowing JNJ shareholders to exchange their shares for Kenvue shares.
JNJ stock jumped more than 6% in intraday trading on the news, yet still goes for just 15 times forward earnings and pays a 3% dividend yield.
Wells Fargo & Co. (WFC)
Wells Fargo is well-suited to benefit from the recent banking industry uncertainty. The firm has a unique opportunity to turn lemons into lemonade. That comes because Wells Fargo has faced a regulatory asset cap as a result of its unwanted accounts scandals in prior years. This caused Wells Fargo to not be able to grow recently. As a result of the regulatory constraints, Wells Fargo kept its balance sheet slimmed down which helped it avoid the “reach-for-yield” temptation that sunk other large banks like Silicon Valley Bank and First Republic.
Now, Wells Fargo is set to return to growth. Second-quarter earnings per share of $1.25 soared 67% from 75 cents for the same period of 2022. The bank is seeing rising profit margins and strong loan performance. A share buyback is adding to the firm’s upside. Even after the upbeat earnings report, shares still go for less than 10 times forward earnings.
Verizon Communications Inc. (VZ)
Investors tend to turn to telecommunications stocks for their stable businesses and high dividend yields. But that reputation has been shattered over the past 18 months as valuations have collapsed across the sector. AT&T Inc. (T) slashed its dividend and its shares are down more than 50% since their 2016 peak. Verizon has held its dividend steady, but it is suffering large stock price losses as well.
The industry is facing headwinds. Rising competition from the cable industry has limited pricing power. Network deployments of 5G have been expensive and have generated only modest returns on invested capital to date. Adding insult to injury, reports surfaced in July that legacy telecom carriers including AT&T and Verizon face legal liabilities related to lead-sheathed communications cables. It’s a perfect storm of negativity. As a result, for deep value investors, Verizon shares are now on offer for about seven times forward earnings and they offer a 7.7% dividend yield.
International Business Machines Corp. (IBM)
For the past decade, IBM stock has seemed like a classic value trap. Shares have traded sideways amid a decline in revenue and the overarching feeling of IBM being a stagnant business in slow decline. But it’s time to take a fresh look, as the IBM of 2023 holds more promise. The Red Hat acquisition has been a turning point for IBM’s cloud business. And IBM has been one of the pioneers in the artificial intelligence space, with it rolling out its AI assistant Watson back in 2010. While it has been a slow path to monetization for Watson, IBM has the chops for doing deep work in the AI space and may get a new appraisal from analysts as investors look for AI plays at reasonable prices. To that point, IBM stock goes for just 14 times forward earnings and offers a generous 4.9% dividend yield.
Black Hills Corp. (BKH)
Black Hills is an electric and natural gas utility which primarily serves the Great Plains and Rocky Mountains regions. Its natural gas division serves approximately 1.1 million customers and the electricity division covers 220,000 customers. The appeal of utility stocks is that they function as fixed-income alternatives. As interest rates go up, people demand higher yields from income stocks such as utilities. Black Hills shares have sunk about 14% over the past year and now trade at levels seen way back in 2014. The firm’s dividend yield of 4.2% is the highest that it has offered since 2015. Meanwhile, profits continue to tick higher and that leads to rising dividends.
In fact, Black Hills is a so-called “Dividend King,” making it one of the rare companies that has managed to raise its dividend annually for at least 50 straight years. A strong starting yield, the expected annual increase to its payout and a forward P/E ratio of 16 add up to a great entry point for this defensive income stock.
Molson Coors Beverage Co. (TAP)
Molson Coors Beverage is the second-largest brewing company in North America. Shares have been stuck in a downturn for many years now; the stock topped $100 per share in 2016 and has fallen far below that price in recent years. However, the good cheer has returned for Molson Coors shareholders in 2023. Anheuser-Busch InBev SA/NV (BUD) has seen its North American beer sales fall after a controversial marketing campaign with Bud Light in particular facing double-digit volume declines. Much of that pain has been Molson Coors’ gain as consumers rotate to different brands. TAP stock has rallied sharply over the past quarter. Even so, shares still go for just 16 times forward earnings today, suggesting that there could be another round of gains to be had later this year. On top of that, the stock also has a 2.4% dividend on tap.
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10 Best Value Stocks to Buy Now originally appeared on usnews.com
Update 07/20/23: This story was previously published at an earlier date and has been updated with new information.
