The stock market appears to be at a turning point. Former momentum favorites such as the artificial intelligence and semiconductor stocks have started to lose steam. Meanwhile, investors are giving a fresh look to previously underperforming sectors like utilities and consumer staples. This comes amid a slowing economy and a Federal Reserve that appears set to embark on a major interest rate cutting campaign.
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With the market seemingly set for a dramatic sector rotation, value stocks could be set for a comeback. All 10 of these value stocks are Morningstar five-star stocks, meaning that its analysts see these firms as among the most attractive bargains in the market right now:
— Kraft Heinz Co. (ticker: KHC)
— BCE Inc. (BCE)
— Endava PLC (DAVA)
— Global Payments Inc. (GPN)
— Ford Motor Co. (F)
— Adient PLC (ADNT)
— Albemarle Corp. (ALB)
— JD.com Inc. (JD)
— Yum China Holdings Inc. (YUMC)
— Sirius XM Holdings Inc. (SIRI)
Kraft Heinz Co. (KHC)
Kraft Heinz has fallen deep into value stock territory in recent years. The multinational packaged foods giant struggled to obtain the expected synergies from 2015’s Kraft and Heinz merger. Meanwhile, the heavy debt load taken on to fund that deal has left the company struggling to find a new direction. The company eventually slashed its dividend in 2019 and has turned to asset sales and other strategic moves to refocus its operations.
These efforts appear to be paying off. Kraft Heinz’s earnings per share have risen from $1.58 in 2019 to $2.31 in 2023. Analysts see that jumping to $3.02 this year, putting the stock at about 11 times forward earnings. This earnings growth is particularly impressive given the struggles that many consumer staples companies have had since the pandemic. Additionally, Warren Buffett’s Berkshire Hathaway Inc. (BRK.A, BRK.B) owns more than a quarter of Kraft Heinz’s outstanding stock.
BCE Inc. (BCE)
BCE is a diversified Canadian telecom company which offers TV, wireless and broadband internet connectivity. It currently has more than 10 million customers and makes up close to a third of the overall Canadian telecom market. Like many telecom companies, BCE stock has underperformed in recent years. Investors have fretted about the high costs of deploying 5G networks, along with worries about higher interest rates.
Now that a rate cut cycle is beginning and the telecom industry is through the brunt of the 5G deployment expenses, however, things are looking up. In particular, BCE’s 8.2% dividend yield will take on greater appeal as interest rates decline and investors rotate from fixed income back to high-yielding equities.
Endava PLC (DAVA)
Endava is a British information technology consulting company. It focuses on U.K. and European clients, primarily in the banking, financial services and payments industries. That said, it has branched out into other geographies and markets in recent years, such as through its April purchase of GalaxE Group, which gives it a presence in the health care consulting vertical.
Endava’s share price collapsed over the past two years as clients slowed down spending on IT services as people returned to the office and demand for digital services trailed off. However, the cycle appears to be turning now, and Endava is set to resume double-digit top- and bottom-line growth in 2025. That makes the stock a steal, with shares still about 80% off their 2021 highs.
Global Payments Inc. (GPN)
Global Payments is a financial services company focused on payment processing technologies. It helps merchants accept all types of transactions, including debit and credit cards, checks, and digital and contactless payment options. Like many peers, Global Payments enjoyed a strong tailwind during the pandemic, as merchants rapidly modernized their systems to reduce cash usage and accept more digital payment options.
But as e-commerce momentum has slowed and the economy has normalized, this growth tailed off and the valuations of payments companies has plummeted. GPN stock, in particular, has dropped by half since its 2021 peak. This is hard to justify, given that the company continues to grow and is on pace to deliver record revenues and earnings this year. Shares now go for about eight times forward earnings.
Ford Motor Co. (F)
High interest rates have crushed certain parts of the economy, with the auto market being one such example. After a boom in both new and used car sales during the pandemic, demand has crashed back to earth. This has resulted in auto producers having big inventory gluts and caused pricing pressure across the industry. Investors are also worried about the impact a recession might have on the industry.
The pain has been particularly extensive in the electric vehicle segment; Ford has been reporting massive losses on its EV operations in recent quarters. But falling interest rates should help stimulate new car demand. And government efforts to protect the domestic EV industry from competition could help lift profitability on that front as well. In any case, at about five times forward earnings, Ford shares are pricing in the worst and could rally on any positive developments.
Adient PLC (ADNT)
With about 70,000 employees, Adient is a major player in the automotive parts and materials space, with a focus on seating systems and components. The slowdown in the automotive space has had a crushing impact on sentiment for the vehicle components makers as well. For example, ADNT stock is now down about 50% over the past year.
This seems like a gross overreaction, given that analysts are projecting a mere 5% decline in revenues in 2024 before the company returns to growth next year. Even on this year’s down results, the stock is selling for just 12 times earnings, and it goes for a projected seven times earnings based on anticipated 2025 results. Morningstar’s David Whiston believes the stock has a fair value of $68 per share, compared to its Sept. 11 closing price of $20.
Albemarle Corp. (ALB)
Albemarle is one of the world’s largest lithium producers, with operations spanning North America, Chile and Australia. Despite being in a commodity industry, Albemarle has had surprisingly stable and consistent results over the years. In fact, it has managed to pay an increasing dividend for 29 years in a row, making it one of the rare Dividend Aristocrats in the basic materials space.
Lithium prices collapsed over the past 18 months as demand from the Chinese market has lagged. However, there was major news for the lithium market on Sept. 11, after a research report from Citi said that key producer Contemporary Amperex Technology Co. Ltd. (300750.SZ) may slash its output, which could help stabilize the market. This should help pave the way for a recovery in ALB stock. Shares are still down about 50% over the past year even following this upbeat news.
JD.com Inc. (JD)
Despite being a growth-focused company, Chinese e-commerce firm JD.com has now reached deep value territory. Shares skyrocketed from about $30 to more than $100 between 2019 and 2021. But the stock has now fallen back to around its initial public offering price from back in 2014. That’s rather remarkable, given that JD is far larger and more profitable today than it was a decade ago.
JD’s revenues grew from $83 billion in 2019 to $153 billion for full-year 2023. The company continues to grow, with analysts projecting $167 billion in revenues for 2024. In August, JD reported another earnings report that topped expectations, and it authorized a new $5 billion share repurchase program. This will allow it to gobble up a ton of it shares while the stock is going for just seven times forward earnings.
Yum China Holdings Inc. (YUMC)
JD is not the only stock that has sold off sharply due to China’s continuing economic slump. Fast food restaurant operator Yum China has also sold off on these concerns. The company operates the KFC, Pizza Hut and Taco Bell brands in China, along with several other homegrown Chinese restaurant concepts.
Investors have understandably dumped YUMC stock amid the Chinese economic uncertainty, with shares falling nearly 50% since their 2023 peak. However, the core business is actually performing reasonably well. Analysts expect Yum China to post 3.7% revenue growth this year, with sales hitting a new record high. The company’s budget-conscious menu offerings are still appealing for consumers. The stock is a tantalizing value here, going for about 13 times forward earnings.
Sirius XM Holdings Inc. (SIRI)
Sirius XM is a leading audio entertainment company focused on satellite radio services. In addition, it operates the Pandora streaming audio platform. The company’s shares have been depressed for a while, as prior buyout speculation failed to come to fruition.
But there’s a new dawn for Sirius XM. On Sept. 10, the company completed a restructuring transaction that should make shares more attractive for investors and improve its valuation. Namely, it merged its Liberty Media tracking stock into Sirius XM, which simplifies the shareholder structure. It also executed a 1-for-10 reverse split while announcing a $1.2 billion share repurchase program.
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10 Best Value Stocks to Buy Now originally appeared on usnews.com
Update 09/12/24: This story was previously published at an earlier date and has been updated with new information.
