Investors are often looking for a good deal to line their portfolio, and in an overwhelming sea of options comprising various structures of securities and asset classes, value stocks are seen by many as the equivalent of a bargain find. Between 2020 and 2022, growth stocks took precedence as a prominent choice in the market, mainly due to the fact that damage dealt to the economy by the COVID-19 pandemic led to a surge of stimulus funds into speculative stocks.
Towards the end of 2022 however, the U.S. stock market began to falter, and this is where investor attention was turned to the potential of value stocks, shares that are undervalued by the stock market for specific reasons at a given time. Currently, discounted share prices can rise gradually to significant levels, but these options can be challenging to identify.
10 Best Value Stocks To Buy: Experts Guide
In a sense, value investors are fundamentally striving to capitalize on inefficiencies in the market as prices of the given company’s underlying equity might not match the latest performance of the organization in question. This type of inconsistency can be easily overlooked. To help investors in their search, here’s a list of some of the most promising value stocks to take note of in 2023.
What are Value Stocks?
Essentially, value investors are always seeking to acquire stocks at a discount to their market value. By that measure, value stocks can be described as publicly traded companies that trade at relatively low valuations in relation to their earnings and long-term growth prospects. Stocks are considered points of interest for value investors when they look to trade at a cheaper price in relation to their fundamentals, such as dividends, earnings, or sales.
In contrast, a growth stock is anticipated to produce returns that are higher than average when compared to its sector’s peers or the general stock market.
The quantity of relevant features that a stock possesses will determine whether it should be classified as a value stock. Some stocks fulfill both criteria or have average valuations or growth rates.
There are certain defining traits in value stocks. For one, they are often established enterprises that grow at a consistent (but not excessively rapid) rate, showing fairly consistent revenue and profit growth. Additionally, a majority of value stocks pay dividends though this isn’t a hard-and-fast rule.
Economic downturns often offer a revealing glimpse of the market for value investors, regardless of the stock’s category. The bottom line is that buying shares at a discount is the aim of value investing, and the optimum moment to do this is when the entire stock market is on sale.
10 Best Value Stocks For Smart Investments
- Imperial Brands (LON: IMB)
- U.S. Bancorp (NYSE: USB)
- RTX Corp. (NYSE: RTX)
- Campbell Soup (NYSE: CPB)
- Pfizer (NYSE: PFE)
- Wells Fargo (NYSE: WFC)
- British American Tobacco (LON: BATS)
- Kellogg (NYSE: K)
- Medtronic (NYSE: MDT)
- Comcast (NASDAQ: CMCA)
1. Imperial Brands (LON: IMB)
The holding firm Imperial Brands Plc produces and sells cigarettes, tobacco, cigars, rolling papers, and tubes. It functions via the segments for Tobacco and Next Generation products (NGP).
According to its preliminary fiscal 2023 trading update, the company’s overall upcoming performance will be in line with management’s expectations and the market appears to have responded well to the news of higher share repurchases in the upcoming fiscal year, seeing that the stock increased by almost 4% as of the close of trade on October 5.
The current market valuation, according to market experts and value investors alike, undervalues the company’s future cash flows and presents long-term investors with an enticing opportunity.
In the same trading update, Imperial provided almost no information other than the fact that foreign exchange will enhance revenue by around 2% for the entire year and that operating profit will rise at the lower half of the company’s mid-single-digit growth forecast.
As a result, it is anticipated that price rises will be the main driver of growth in the second half of the year, which will be reasonably faster than growth in the first half. The company is not spending as much on next-generation products as its competitors, but in 2023 it seems to have achieved low-single-digit growth in these areas.
2. U.S. Bancorp (NYSE: USB)
As a well-established bank holding company, U.S. Bancorp provides a range of financial services such as trust and investment management, cash management, and foreign exchange to name a few.
Recently, the huge institutional holdings in U.S. Bancorp suggest that these entities have a considerable impact on the stock price of the company. With 47% ownership, a total of 25 investors own the majority of the business.
The institutions, the most influential stakeholder groups, own the most shares in the corporation with a 76% holding. In other words, the group has the greatest chance of experiencing either positive or negative outcomes.
Institutional owners often make significant investment decisions, especially with respect to individual investors because of the intrinsic access to a large pool of resources and liquidity. As a result, substantial institutional investment in a company is typically seen as a positive indicator for value.
3. RTX Corp. (NYSE: RTX)
Prolific aerospace and defense firm, RTX Corp. experienced a stock price crash that may yet provide opportunity down the line. Given the 46% decline in share price over the previous five years, some shareholders may now be doubting their investment in RTX.
In addition, the news of recent problems with the geared turbofan engine that was set to be released has caused the company to lose about 25% of its value.
In five years of rising share prices, RTX turned a profit after five years of losses. In fact, revenue has increased by 6.1% throughout that time. In order to comprehend why the share stagnates, a closer inspection of the fundamentals and various indicators surrounding the business performance may be required.
Analysts advise caution moving forward with investments in RTX, even so, there may be long-term opportunities for growth around the corner.
4. Campbell Soup (NYSE: CPB)
A popular household name, the Campbell Soup company has secured its legacy as a player in the manufacturing and marketing of food and beverage products with categories of operation in meals, beverages, and snacks. However, as rising competition, cost concerns, and declining consumer spending put pressure on short-term sales and profits in 2023, Campbell Soup’s CPB shares are faltering.
Despite this, advocates who contend that CPB is currently undervalued by about 30% to 41%, are optimistic about this wide-moat dividend stock in the long run at the current stock price, as they expect the firm to bounce back and continue on its growth trajectory.
5. Pfizer (NYSE: PFE)
Internationally recognized biopharmaceutical firm Pfizer sells a wide variety of medicines across treatment areas such as autoimmune diseases and oncology. However, it is probably best known for its market-leading coronavirus vaccine, which last year helped the business set a record by bringing in more than $100 billion in revenue. Perhaps surprisingly, that had no positive impact on Pfizer’s share performance this year. About 35% of the equity has been lost.
Given all of this, it’s understandable why some investors have been hesitant to purchase Pfizer shares. However, it’s crucial to take into account some of the company’s good news and determine whether it might even balance out these drawbacks.
For one, the coronavirus products made by Pfizer are still drawing attention. Despite the fact that sales won’t be as high as they were in the early stages of the pandemic, it’s likely that product variations Comirnaty and Paxlovid may grow into a dependable source of less-than-stellar but nonetheless satisfying recurrent revenue.
Pfizer has also used profits from its vaccine and coronavirus therapy to funding further initiatives and acquisitions that should support its long-term expansion. For instance, Pfizer purchased four businesses last year (Arena Pharmaceuticals, ReViral, Biohaven, and Global Blood Therapeutics) that are expected to increase sales by more than $10 billion by 2030.
6. Wells Fargo (NYSE: WFC)
As one of the biggest providers of financial services, Wells Fargo & Co. built its name on the offerings of consumer and business financing as well as banking, insurance, investments, and mortgage goods and services.
Shareholders of this highly established yet fairly controversial corporation have witnessed the share price rise by 55% over three years, well in excess of the market return (15%, not including dividends).
There is strength in both its operation and balance sheet, which are both showing solid performance. The return on equity (ROE) for the most recent quarter increased from 7.2% in the second quarter of 2022 to 11.4%.
The company’s return on common equity (ROTCE) increased from 8.7% to 13.7% over time. These numbers are fairly in line with its first-quarter performance indicators, in contrast to the past quarter when equity-based returns saw consecutive reductions at rival banks like Bank of America and Citigroup.
Ultimately, the overall performance of Wells Fargo is greater than recent and historical stock performance would imply. It’s a company that’s had its fair share of controversies and errors, which affects the impression of investors and its overarching corporate brand presence, but this does not necessarily reflect Wells Fargo’s potential for future profitability.
7. British American Tobacco (LON: BATS)
As one of the most prolific holding companies in history, British American Tobacco is involved in the production and sale of tobacco products across numerous regions, spanning operations globally.
As fewer people smoke, tobacco businesses are often viewed as remnants of a less-informed world edging closer to extinction. In an attempt to pivot in a more relevant direction, players in the sector like British American Tobacco are attempting to move past cigarettes in an effort to reclaim the market with lower-risk (but still harmful) goods such as vaping products and nicotine patches.
Nonetheless, the BATS stock may be undervalued given the company’s forecasted mid-single-digit profit growth and the potential increase for investors.
There may be a continuation of double-digit total returns from the earnings growth and dividend yield even if the stock’s valuation remains unchanged, depicting a rather compelling reason to maintain bullish investing positions.
8. Kellogg (NYSE: K)
Kellogg’s stock experienced a range of $51.70 to $77.17 over the past year, with financial ratios including a 1.20 debt-to-equity ratio, 0.66 current ratio, and 0.40 quick ratio, all indicators that should be considered by investors.
Institutional investors made significant moves in Kellogg during the second quarter. CGC Financial Services LLC acquired a $27,000 position, Sandy Spring Bank increased its holding by 902.5% to 401 shares valued at $27,000, and RFP Financial Group LLC entered with a $30,000 investment. These moves reflect confidence in Kellogg’s future prospects.
Kellogg reported Q3 earnings per share (EPS) of $1.25, surpassing analyst estimates by $0.14, and generated $4.04 billion in revenue compared to the projected $4.05 billion. This positive earnings surprise demonstrates Kellogg’s potential capacity for strong performance.
As it stands, Kellogg has been split into two entities: Kellanova (K) for the global snack business and WK Kellogg for the North American cereal business. While spinoffs don’t create shareholder value, they can surely unlock it by allowing more focused management.
9. Medtronic (NYSE:MDT)
Medical technology firm Medtronic recently reported its Q1 fiscal 2023 (fiscal ends in April) results, which were better than the unofficial estimates. Despite its recent upswing, given its excellent valuation, investors will probably be better suited to purchasing Medtronic stock in the long run for more respectable gains.
The introduction of the organization’s new devices, especially MiniMed 780G in the United States, may turn out quite profitable. The company’s emphasis on cost reduction and a better supply chain condition also supports the increase of its operating margin.
10. Comcast (NASDAQ: CMCA)
Comcast Corp. – a long-standing company involved in phone, internet, and video services as one of the largest cable TV and internet players to date – presently has a stock that is trading at approximately $45 per share, around 27% below the peak of $61.75 observed in September 2022, and seems to have some room for growth.
According to Zacks Equity Research, investors should be aware that CMCSA has a P/CF ratio of 9.10. This represents an organization’s operating cash flow and can be used to identify companies that are undervalued when taking into account their strong cash outlook.
In comparison to the 9.92 average P/CF of its sector, this company’s current P/CF appears to be fairly strong. The P/CF for CMCSA stands out as one of the market’s greatest value companies when you take into account the strength of its earnings forecast.
Conclusion
Given the nature of value investing, there are plenty of other prospects in the market that indicate potential value stocks to take note of. The listed companies are just a handful of possible gems that could lead to great opportunities for growth and in turn, a more reinforced portfolio for savvy investors.
