- Weakness and long-term fear make investing in value stocks a strong idea right now.
- Target (TGT): Earnings have been strong and Target is fundamentally strong.
- DR Horton (DHI): The strengths are in place for this homebuilder to continue to perform very well.
- Deere (OF): Has a lot of tailwinds as well as built-in advantages.
- AbbVie (ABBV): Increased guidance and a rock-solid dividend make AbbVie a buy.
- Berkshire Hathaway (BRK-A, BRK-B): The world of value investing will always consider Berkshire Hathaway, always reliable.
- Procter & Gamble (PG): In tough times, consumer staples giants including Procter & Gamble are often solid bets.
- Coca Cola (KO): Coca-Cola makes sense for many of the same reasons as Procter & Gamble.
There are good reasons to believe that value stocks are once again becoming a smart choice. Growth stocks have proven to be incredibly volatile in a rising interest rate environment. Tech giants, part of the tech sector that largely defines growth stocks, lost more than $1 billion in value in the May 6-9 period, according to one source.
The impetus for the sell off was of course the Federal Reserve’s decision to raise its benchmark rate. Every time the Fed raises its benchmark rate, technology receives another blow. Fears about this relationship began to surface in late 2021 when inflation fears initially surfaced.
Those fears galvanized a pivot away from growth stocks and technology in particular. This meant and continues to mean that there is an opportunity for value stocks.
|BRK-A BRK-B||Berkshire Hathaway||$314.60|
|PG||Procter & Gamble||$154.68|
As I write these lines, May 12, the Dow Jones continues to slide, falling more than 1%. But big box retailer Target (NYSE:TGT) turns out to be a beacon of hope amid the continuing bad news. It rose more than 1% on the day.
It has proven to be a relatively stable stock throughout 2022, although it has fallen from $231 to $216. Let’s look at it from both a growth perspective and a value perspective to understand why it makes sense to invest now.
From a growth perspective, Target has consistently shown over the past four quarters that it has the ability to surprise. In each of these past four quarters, the Minneapolis-based company has exceeded consensus expectations for earnings per share (EPS). In fact, last quarter Target surprised the market with EPS numbers that beat expectations by 11.54%. There are strong indications that the company could once again surprise positively on May 18 when it releases its results again. More broadly, Target is a top choice among value stocks, as its EPS expectations indicate it will continue to grow at least through 2026.
From a fundamental value perspective, there is also a good reason to invest in TGT stock: its current price-to-earnings (P/E) ratio of 15.46 is better than the current P/E ratio of the action TGT. S&P500 which stands at 15.97.
DR Horton (DHI)
DR Horton (NYSE:DHI) is a company with a fairly simple business model: it buys land, builds residential homes on that land, and resells them.
Given that housing prices are booming, it makes sense to consider the DHI stock. However, interest rates are rising, which means there is potential for a market downturn.
Admittedly, DR Horton faces a significant headwind that will most likely be negatively affected in the short term. However, there are some important counterpoints to this idea.
First, in late April, the company raised its sales forecast citing the strength of the housing market. Although this news came before the most recent interest rate hike, the company was clearly aware that rate hikes were coming.
The positive outlook follows the company’s second-quarter earnings beat. DR Horton posted EPS of $4.03, well ahead of the $3.38 the market was anticipating.
The other reason to be positive on DHI stock is that in the longer term, the construction boom is unlikely to wane despite rising interest rates. According to data from real estate agent.comthe United States was short of 5.24 million homes in September 2021. this figure was up about 1.4 million from 2019. This strongly indicates that builders, including DR Horton, will have a lot of work to do even if the Fed raises interest rates.
This is good news for savvy investors looking for value-oriented housing stock.
Deere (NYSE:OF) the stock is up slightly throughout 2022, rising from $350 to $357 at the time of writing. this is certainly good news given that the S&P 500 is down more than 19% since the start of the year.
Farmers are looking to maximize their yields as food prices continue to soar. And given that Bank of America (NYSE:BAC) views Deere as the leader in precision agriculture, the company has a reasonably powerful catalyst.
In other words, Deere should see strong demand for its products as farmers look to maximize yields and increase their bottom line.
That said, the case for DE stock is unclear: it has a P/E ratio of 19.86, higher than the S&P 500 P/E ratio of 15.97. However, DE stock has a significant upside price in the current consensus target prices of $445.64 as it trades at $357.
AbbVie (NYSE:ABBV) is a pharmaceutical giant spun off from its former parent company, Abbott Laboratories (NYSE:ABT).
One of the main reasons to consider investing in AbbVie shares is its strong dividend. The quarterly dividend currently sits at $1.41 and has not been reduced since the company spun off from Abbott Laboratories in 2013.
The dividend was increased in January of this year from its previous payout of $1.30. This dividend increase and the company’s dividend payout history should inspire confidence that the future is bright for AbbVie.
Otherwise, investors have another reason to be confident in the company’s future. in its latest earnings report, the company was confident enough to raise its full-year EPS guidance to $14 to $14.20 from a previous range of $13.92 to $14.12.
Berkshire Hathaway (BRK-B)
If the value is the name of the game, then Berkshire Hathaway (NYSE:BRK-A New York stock market :BRK-B) stock is about as logical of a choice as there is. Of course, investors are well aware that the company is run by Warren Buffett and his longtime business partner, Charlie Munger. Investors are also aware that value guides their investment principles.
Despite most analysts currently pricing the company’s stock as a reserve, there are reasons to believe in the stock. On the one hand, there are a lot of advantages built into the current prices. Berkshire Hathaway shares are trading around $310, but consensus target prices put it at $365.
Beyond that is the company’s lowest P/E ratio of 8.35. This is a reasonably solid indication of Buffett and Munger’s investment principles. The other reason investors should be interested in Berkshire Hathaway right now is the fact that the company has exceeded EPS expectations in each of the past two quarters. backward values, few if any stocks better represent value than Berkshire Hathaway.
Procter & Gamble (PG)
Just a few weeks ago, the consumer goods giant Procter & Gamble (NYSE:PG) published historic quarterly reports gain in sales.
The company noted that despite inflation concerns and fears of a recession, consumers were still willing to pay high prices for its products. Despite higher costs, the company said its organic sales increased 10% in the quarter. The company also cautioned against the news, noting that continued economic hardship could cause consumers to switch to cheaper brands.
Since the April 20 earnings release, the stock price has fallen about $10. But there is little evidence to support the idea that consumers are opting for generic brands over Procter & Gamble products. This implies that the company could once again record windfall profits in the following quarter.
Part of the value inherent in investing in Coca Cola (NYSE:KO) the stock is the fact that it consistently produces strong returns. Example: The company has exceeded EPS guidance in each of the past four quarters.
Even so, it is trading at around $65, near the analyst low target price of $64. But history shows that the company is trading in a tight range and if you can buy it anywhere near a low price, returns are a virtual certainty. KO actions definitely put “value” into value actions.
At the end of April, the company announced an increase in quarterly sales thanks to strong demand. This demand was strong enough to outpace an increase in input prices for its products, suggesting that the company is weathering the current storm well.
At the date of publication, Alex Sirois did not hold (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.