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7 Value Stocks That Could Make You the Next Warren Buffett
Value and growth investing are important concepts for investors. If you are value-oriented, you usually seek out underpriced value stocks that have recently fallen out of favor. On the other hand, if you are growth-oriented, you seek out businesses with high revenue, earnings or cash flow growth.
Market professionals and academics constantly debate whether value investing or growth investing is more profitable. At the end of the day, though, many people concur that a diversified portfolio with both offers the strongest results in the long run.
For this article, though, I will focus on the value side of investing.InvestorPlace – Stock Market News, Stock Advice & Trading Tips
You probably know Warren Buffett as one of the most prominent value investors of all time. In 1965, Buffett took ownership of Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B), a struggling group of textile firms. Now it has the highest stock price ever, at $336,00 per share.
So, investors would do well to look for their own value propositions. Research led by Kewei Hou of the National Bureau of Economic Research (NBER) highlights where to start:
“The basic philosophy [of value investing] is to invest in undervalued securities that are selling well below the intrinsic value. The intrinsic value of a security is in turn the value that can be justified by the issuing firm’s earnings, dividends, assets, and other financial statement information.”
Of course, not every cheap stock offers value. Therefore, investors need to examine shares thoroughly when looking for a long-term play. Those stocks tend to be established businesses with steady growth, earnings and cash flows. Many also pay dividends. What’s more, a value stock’s recent decline in price is often short-term — a reaction to an earnings miss or the departure of a CEO.
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So, with all that said, here are seven value stocks to consider closely in November:
Albertsons (NYSE:ACI)
AT&T (NYSE:T)
Beazer Homes (NYSE:BZH)
Centene (NYSE:CNC)
Ingredion (NYSE:INGR)
iShares MSCI EAFE Value ETF (BATS:EFV)
Vanguard S&P 500 Value Index Fund ETF Shares (NYSEARCA:VOOV)
Value Stocks to Buy: Albertsons (ACI)
Source: Shutterstock
52-week range: $12.91 – $16.50Dividend Yield: 2.6%YTD change: – 2.1%
Headquartered in Boise, Idaho, Albertsons is a leading grocery chain in the United States. The company currently has over 2,250 stores across 35 states and the District of Columbia. Additionally, over 1,700 of these stores have in-store pharmacies. The company even operates about 400 fuel stations.
In fact, you’ve probably shopped at an Albertsons location before — they include brands like Safeway and Shaw’s, among others. The company also owns the meal-kit company Plated. Over the past several months, management has been working hard to ramp up its e-commerce presence, too. Right now, Albertsons ranks 55 on the Fortune 500 list.
In late October, Albertsons released results for its second quarter. Revenue of $15.8 billion meant an increase of 11.2% year-0ver-year (YOY). The gross profit margin also increased to 29%, up slightly from Q2 of 2019.
Investors were also pleased to see adjusted net income of over $356 million. That amounted to 60 cents per share. A year ago, the metrics had been just over $99 million at 17 cents per share.
Now ACI stock’s forward price-to-earnings (P/E) and price-to-sales (P/S) ratios are 9.37 and 0.11, respectively. And the company just went public this year. So, watch this pick of the value stocks — its shares deserve to be on any investor’s radar.
AT&T (T)
Source: Jonathan Weiss/Shutterstock
52-week range: $26.08 – $39.70Dividend Yield: 7.2%YTD change: – 26.75%
Of course, AT&T needs little introduction. The multinational conglomerate offers diversified services in media, entertainment, telecommunications and technology. That alone makes it stand out against other value stocks.
However, it has been a difficult year for AT&T. The pandemic meant the closure of movie theaters, the cancellation of many revenue-raking sports events and more. Naturally, that hurt T stock.
But in October, the company released Q3 results which showed some promising bright sides. Revenue of $42.3 billion topped estimates and free cash flow was $8.3 billion. Only AT&T’s adjusted earnings per share (EPS) came in at 76 cents, down from 94 cents a year ago. Management blamed the decline on Covid-19.
Despite the EPS disappointment, though, analysts were pleased to hear that the company netted 645,000 new phone subscribers on recurring monthly bills. In the United States, the group also totaled 38 million subscribers for both HBO and HBO Max, beating its year-end goal of 36 million. What’s more, HBO’s global subscriber numbers now stand at 57 million. About the results, CEO John Stankey said:
“Our strong cash flow in the quarter positions us to continue investing in our growth areas and pay down debt. We now expect 2020 free cash flow of $26 billion or higher with a full-year dividend payout ratio in the high 50s%.”
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Currently, AT&T stocks’ forward P/E and P/S ratios are 8.94 and 1.19. Needless to say, passive-income-seeking investors will likely find value in this company’s shares.
Beazer Homes (BZH)
Source: Shutterstock
52-week range: $4.39 – $17.23Dividend Yield: N/AYTD change: 2.2%
A residential homebuilder based in Atlanta, Beazer Homes is the next on my list of value stocks. You may be familiar with the homes sold under its Beazer, Gatherings, and Choice Plans names. BZH stock has been listed on the New York Stock Exchange since 1994.
The company announced its third-quarter results for fiscal year 2020 back in July. Homebuilding revenue hit over $532 million, up 10.4% YOY. Additionally, Beazer’s net income for operations came in at $15.3 million, compared to $11.6 million a year ago. Investors noted that the company’s balance sheet was strong with ample liquidity.
In late September, management also released preliminary operating results for Q4. New orders for the first two months of the company’s fiscal fourth-quarter were up 37% YOY.
Right now, Beazer’s forward P/E is 2.44 and its P/S ratio is 0.18. Given its solid financials, potential investors should study the metrics and consider putting new capital into BZH stock.
Centene (CNC)
Source: Shutterstock
52-week range: $43.96 – $74.70Dividend Yield: N/AYTD change: 9.53%
Centene is a health plan provider focusing on government-sponsored healthcare programs like Medicaid, the Affordable Care Act (ACA), and military plans. Over the years, the company has been growing both organically and through acquisitions. In fact, it now ranks 42 on the Fortune 500 list, making it one of the more notable value stocks.
Centene released its Q3 results in late October. Revenue came at a little over $29.1 billion, showing a 53% growth YOY. Adjusted diluted EPS was $1.26. A year ago, that figure had been 96 cents. On top of that, CNC’s managed care memberships grew to 25.2 million, representing a 65% increase YOY. Obviously, the pandemic has been a huge contributor to membership growth.
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Currently, CNC stock has forward P/E and P/S ratios of 12.29 and 0.36, respectively. What’s more, with a new administration coming into the White House, shares of this healthcare insurer will probably get more favorable attention in the near future. Investors should take note.
Ingredion (INGR)
Source: Shutterstock
52-week range: $59.11 – $99.51Dividend Yield: 3.5%YTD change: – 21.5%
Next on my list of value stocks is Ingredion, a supplier of — you guessed it — ingredients.
Headquartered in Illinois, the company has businesses in the food, beverage, brewing, and biopharma industries. In some ways, Ingredion is really a jack of all trades. The global manufacturer takes raw materials such as fruits, vegetables and grains and turns them into value-added ingredients with uses across multiple industries.
Ingredion released Q3 metrics in early November. Net sales of $1.5 billion meant a decline of 5% YOY and net income was over $92 million or $1.37 per share. A year ago, the numbers were $99 million or $1.48 per share. Management noted that this “decrease was driven by foreign exchange impacts in South America and sales volume declines in North America.”
However, CEO Jim Zallie also said in the release that, “Reported and adjusted operating income were up 35% and 41%, respectively, from the second quarter. Our intense focus on servicing customers and operational execution, enabled us to deliver year-over-year profit growth in most of our regions.”
INGR stock’s forward P/E and P/S ratios are 11.42 and 0.82. As such, value investors should look to buy the dips in the company’s shares. With a Covid-19 vaccine on the horizon, the coming months will likely see an ease of restrictions and increased consumer activity out-of-home. That means there’s potential upside for the stock.
iShares MSCI EAFE Value ETF (EFV)
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52-week range: $30.26 – $50.95Dividend Yield: 3.7%YTD change: – 10.9%Expense ratio: 0.39%, or $39 per $10,000 invested annually
Our next discussion in my list of value stocks centers around an exchange-traded fund (ETF) — the iShares MSCI EAFE Value ETF.
This ETF has an overseas focus. It provides access to a range of businesses in Europe, Australia, Asia, and the Far East that fund managers regard as undervalued. The fund started trading in 2005.
EFV — which has 546 holdings — tracks the MSCI EAFE Value Index. The top 10 holdings make up a little over 15% of its net assets of $5.39 billion. Heading the list of businesses in the fund are Switzerland-based biopharma giant Novartis (NYSE:NVS), Japanese car manufacturer Toyota Motor (NYSE:TM) and the French health group Sanofi (NASDAQ:SNY). With names like that attached to the ETF, investors should be comforted.
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What’s more, EFV stock’s average trailing P/E and P/B stand at 14.53 and 0.94, respectively. So, those value investors who are thinking about diversifying outside of the U.S may want to keep an eye on this fund.
Vanguard S&P 500 Value Index Fund ETF Shares (VOOV)
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52-week range: $78.30 – $127.43Dividend Yield: 2.6%YTD change: – 5.89%Expense ratio: 0.1%
My final choice for this list of value stocks is another ETF, the Vanguard S&P 500 Value Index Fund ETF Shares. The fund gives access to 391 value companies within the S&P 500 and started trading in 2010.
What makes VOOV interesting? The top 10 holdings of the ETF make up over 20% of net assets of $ 1.4 billion. These include Warren Buffet’s own Berkshire Hathaway, UnitedHealth (NYSE:UNH), Verizon Communications (NYSE:VZ), and Johnson & Johnson (NYSE:JNJ) — all top names in their fields.
VOOV stock’s trailing P/E and P/B stand at 19.02 and 1.97. Naturally, the ETF carries a lot of promise. But given the recent increase in broader markets, potential long-term investors may want to wait for a short-term decline before entering the fund.
On the date of publication, Tezcan Gecgil held both long and short positions in ACI stock.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
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