The stock market is back on the upswing. It’s been a particularly strong time for tech stocks. New innovations such as artificial intelligence have given a boost to more speculative parts of the market. Investors might fear that they have missed out on the best opportunities. But there are still plenty of worthwhile companies to invest in today and that’s particularly true within the value stocks universe.
Over the past year, interest rates have surged amid the Federal Reserve’s campaign to rein in inflation. This has caused negative repercussions for many value stocks which have found themselves vulnerable to the effects of this tighter monetary policy. But the market could be at a turning point. This past month saw inflation readings come in much softer than expected, and credit markets are starting to look for rate cuts in 2024. A turn in interest rates could give a big boost to equities in general and these value stocks in particular:
— Verizon Communications Inc. (ticker: VZ)
— Qualcomm Inc. (QCOM)
— Cisco Systems Inc. (CSCO)
— Toronto Dominion Bank (TD)
— Global Payments Inc. (GPN)
— Pfizer Inc. (PFE)
— Chevron Corp. (CVX)
— Aflac Inc. (AFL)
— Discover Financial Services (DFS)
— Entergy Corp. (ETR)
Verizon Communications Inc. (VZ)
Value investors have long gravitated to telecom stocks. The sector is known for its stable cash flows, recession-resistant business model, and large dividend yields. What’s not to like? However, telecoms have come under fire over the past few years. 5G network deployments have been exceedingly expensive, and haven’t paid off as quickly as anticipated. And large dealmaking has caused some telecom firms to stumble; rival AT&T Inc. (T) slashed its dividend following its ill-conceived Time Warner acquisition. Investors have unfairly punished the whole industry for these issues, though. Verizon, for its part, is now down to less than eight times forward earnings while paying a generous 7.1% dividend yield.
Qualcomm Inc. (QCOM)
5G’s issues haven’t just impacted the mobile phone carriers. Communications-focused semiconductor giant Qualcomm has seen its outlook dip over the past year. As telecom companies have dialed back 5G spending, that has had a negative read-through to Qualcomm. Additionally, smartphone sales have slowed a bit after the consumer electronics boom of 2021 and 2022. This has led to underwhelming share price performance with QCOM stock trading roughly flat over the past three years.
That said, value investors that can look past these headwinds will be rewarded. There is little doubt that that demand for mobile data, and thus Qualcomm’s 5G solutions, will only climb over time. And Qualcomm has other irons in the fire, such as AI-enabled chips for mobile devices, which promise to unlock new growth avenues for the firm as well. Shares currently go for just 12 times forward earnings and offer a decent 2.5% dividend yield as well.
Cisco Systems Inc. (CSCO)
Cisco is another technology giant facing a near-term dip in its earnings results. Cisco shares recently slumped by more than 10% on a downbeat earnings report where the company’s backlog fell more rapidly than expected. It seems that many large tech firms are cutting back their capital expenditures for the time being given the uncertain economic outlook. After record orders recently, the industry is understandably moving to a slower ordering cadence for 2024. That doesn’t change Cisco’s long-term value, however. The company has a dominant position in networking equipment, and the need for additional data capacity remains a firm tailwind for Cisco going forward. In the meantime, Cisco’s management has said it will return more capital to shareholders during this dip. With the recent price correction, shares go for less than 12 times forward earnings and pay out a solid 3.3% dividend yield.
Toronto Dominion Bank (TD)
Toronto Dominion Bank is one of Canada’s big five banking firms. It operates extensively across both retail and investment banking, and in recent years it has expanded its footprint in the U.S. market as well. TD stock has fallen dramatically since its 2022 peak amid worries of a slowdown in the Canadian economy. Canada’s GDP growth is quite tied to the housing market, which means that higher interest rates could have a more harmful impact on Toronto Dominion’s business than comparable U.S. banks. In addition, Toronto Dominion is one of the largest shareholders of discount brokerage firm Charles Schwab Corp. (SCHW). Schwab shares plunged earlier this year thanks to large unrealized losses on its fixed-income holdings. Now that interest rates have seemingly peaked for the time being, Schwab shares should start to rally. Combine that with an improving outlook for Canada’s economy as rates retreat, and TD stock is set to bounce back.
[7 Dividend Stocks Paying 5% and Above]
Global Payments Inc. (GPN)
Global Payments is one of America’s largest payments and merchant processing companies. It offers a wide range of hardware, software and ancillary services to retailers. Specifically, it provides payment terminals to merchants and related functions such as accounting and tax services, fraud detection, point-of-sale software, chargeback management and so on.
Like most payments stocks, Global Payments has slumped over the past two years. However, Global Payments is a different payments business than several of its rivals. That’s because Global Payments isn’t just a check-out button on a website or app. Rather, it is a more integral and comprehensive solution that physical and omnichannel retailers rely on to serve as the nuts and bolts of their financial processes. Global Payments has reported strong earnings in recent quarters. Even with the good news, shares are still on sale for less than nine times forward earnings.
Pfizer Inc. (PFE)
Pharmaceutical giant Pfizer was trading for around $40 per share prior to the onset of COVID-19. The company then commercialized a blockbuster vaccine for that pandemic and generated tens of billions of dollars in revenues. Despite the record profitability, however, Pfizer stock did not hold onto any of its gains. In fact, shares are now down to $30, leaving it well below where it was trading prior to the development of that vaccine.
This seems like a serious miscalculation. It’s true that vaccine sales have largely tapered off. However, Pfizer’s revenues are up from $41 billion in 2019 to about $60 billion annually today. The business is much larger now than it was a few years ago, as Pfizer has invested its profits back into its drug pipeline to develop more therapies going forward. Shares now sell for less than 10 times estimated 2024 earnings while paying a 5.4% dividend yield.
Chevron Corp. (CVX)
Chevron is one of the world’s largest energy companies. It operates in both the production of oil and natural gas along with its downstream segment which refines and markets oil and distributes a variety of petroleum products. The company has bet heavily on liquefied natural gas (LNG) in recent years, investing untold billions of dollars in this energy source. This bet appears to be paying off; LNG prices surged in 2022 in the wake of Russia’s invasion of Ukraine. With geopolitical tensions flaring up in the Middle East as well, Chevron’s LNG assets look increasingly valuable going forward. Chevron shares sold off sharply on their most recent earnings report due to falling downstream profit margins. However, the firm’s worldwide oil production continues to rise and it is well-positioned for the global energy market going forward.
Aflac Inc. (AFL)
Aflac is a leading insurance company which primarily offers life and supplemental health insurance. In addition to its U.S. division, Aflac has a large market share within the Japanese life insurance market. After an initial plunge during the pandemic, Aflac shares have now soared, with the stock rising from below $40 to around $80 now.
Life insurers such as Aflac benefit from higher interest rates. After years of nearly zero interest rates, insurance companies can now put money into bonds and earn generous returns. As insurers profit from using the cash float on policyholders’ premiums, locking in higher interest rates is a game-changer for these firms’ profitability. In addition, the GLP-1 class of drugs are making major improvements in the lives of diabetics and people struggling with obesity-related health issues. This could lengthen people’s lifespans and thus improve financial results for life insurers. Even after the rally, Aflac shares still go for just 13 times forward earnings.
Discover Financial Services (DFS)
Discover is the operator of its namesake credit card network. Unlike several rivals, Discover is also a personal lender as it extends credit directly to Discover customers. To fund its loan book, Discover runs a large bank with about $75 billion in direct-to-consumer deposits. Given how high credit card interest rates are, Discover’s lending business has historically been exceptionally profitable. And loan losses have been limited; even in the 2008 financial crisis, Discover remained profitable.
Investors are worried about Discover now due to the possibility of a recession in 2024. That’s certainly a risk. And shares also dipped with the CEO’s recent exit from the firm. However, Discover can profit from its current situation. For one thing, the company is known for its aggressive share buyback. It has retired fully half of its outstanding stock since 2010, powered by the firm’s low P/E ratio. With shares at just seven times forward earnings, Discover is set to deliver more rewards for its loyal shareholders.
Entergy Corp. (ETR)
Entergy is a holding company which owns five different regulated utility operations. In aggregate, Entergy’s operations provide electricity to approximately three million customers in Texas, Arkansas, Louisiana, and Mississippi. It has large operating scale as one of the nation’s biggest utilities. In addition, there has been above-average economic growth in Entergy markets such as Texas, which has led to significant expansion opportunities for the utility. Shares have slipped a bit this year, primarily due to rising interest rates. This has led to significant undervaluation with the stock going for less than 15 times forward earnings. That’s quite a reasonable entry point given the firm’s growth prospects combined with its defensive business. The 4.5% dividend yield gives a strong incentive to income investors as well.
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10 Best Value Stocks to Buy Now originally appeared on usnews.com
Update 11/22/23: This story was previously published at an earlier date and has been updated with new information.
