Value stocks have underperformed growth stocks over the past decade. This is due to the cheap financing available for hyper-growth businesses. Additionally, investors have taken a risk-based approach to stock selection. However, the tables have turned this year as investors seek to find the best value stocks trading at a discount.
Inflation remains at a 40-year high as the Federal Reserve tightened monetary policy, forcing investors away from growth stocks. Inflated valuations of many of the most popular growth stocks have forced investors to take refuge in companies with attractive fundamentals and lower stock prices.
Therefore, investors should look for the most profitable stocks that are trading at discounted prices with huge upside potential.
|LEG||Leggett & Platt||$39.1|
Online travel booking giant Expedia (NASDAQ:EXPE) recently published its first quarter results, reflecting a recovery in activity. Its first-quarter revenue was $2.25 billion, an 81% improvement over the year-ago period and ahead of Wall Street estimates of $2.23 billion.
It has its work cut out for it to catch up to pre-pandemic levels, but its gradual recovery in results suggests it could hit that target within a few years.
Going forward, momentum is expected to pick up significantly as restrictions on international travel ease. Nevertheless, the impact of the coronavirus, inflation and geopolitical tensions are likely to weigh on corporate results.
Its CEO, Peter Kern, believes that “pent-up travel demand seems to be outweighing anything the market can throw at it.” With investor skepticism surrounding EXPE, stocks are trading at multi-year lows, creating an attractive entry point for long-term investors.
AbbVie (NYSE:ABBV) is a leading global pharmaceutical company that markets and grows some of the biggest money-making companies in the industry.
His arthritis drug Humira has been his cash cow, but with his patent expiring, investors are worried about his future. However, he has one of the largest portfolios in the industry, generating revenues of more than $56.1 billion last year, which is a nearly 100% increase from five years prior. .
With Humira’s patent expiring horizon, ABBV has lost a good chunk of its value lately. Nevertheless, the combined sales of its two main immunological drugs, Skyrizi and Rinvoq, are expected to exceed sales of Humira.
Moreover, he also earns big with his neuroscience and aesthetics portfolios. In its recently released quarterly report, sales for its neuroscience and aesthetics department were in double digits over the previous year. Another major plus for the company is that it comes with a healthy dividend, yielding over 3.69%.
Target (NYSE:TGT) was one of the best-performing retailers during the pandemic, with a 19.3% increase in comparable sales in 2020. The company capitalized on changing consumer shopping habits during the pandemic.
Same-store sales increased nearly 13% in fiscal 2021, pushing total sales up $28 billion. The company’s rampant revenue growth has made it much more efficient, reducing operating expenses as a percentage of sales.
Unfavorable market conditions have strongly affected recent results at present. Discretionary spending is down, but long-term results should improve over time. More encouraging for Target is that it announced a massive 20% dividend increase to $1.08 starting in September. The boost pushes yields past the 3.10% mark.
Leggett & Platt (LEG)
Leggett & Platt (NYSE:LEG) is a durable consumer goods giant with a proven track record of rewarding its shareholders. He has increased his dividend payouts by 51, making him a dividend king and an aristocrat.
This is largely due to its consistent performance over the past few years, with single-digit performances across multiple revenue and profitability metrics. Its performance is strongly linked to the diversity of its product base, which covers furniture, bedding, textiles and other related products.
With the exception of the third quarter of 2021, it has consistently exceeded analysts’ estimates on earnings and earnings since the fourth quarter of 2020. The company plans to continue investing for the future, but not at the expense of its payouts. dividends and share buybacks. It has a superior balance sheet with over $1 billion in its credit facility.
Barclays (NYSE:BCS) operates a diversified business model which includes its investment wing and a consumer banking wing serving the UK and US markets.
Such an arrangement puts it in a position to withstand the difficult macro-economic environment at the moment.
The investment side should benefit hugely from the increased volatility. Additionally, the current volatility in fixed income should be a blowout for major investment banks. In addition, rising interest rates should benefit consumers. Its first quarter report showed that an increase of just 25 basis points could lead to £525m in net profit.
Additionally, he is aiming for a 10% return on tangible equity for the year, which puts him in an incredible position among investors.
United rentals (URI)
United rentals (NYSE:URI) is the largest equipment rental company with an incredible history of outperforming a highly fragmented industry. He has been one of the biggest wealth generators in his industry, generating over 630% returns over the past decade.
Earnings since the start of the year have been negative, while its management expects record demand due to long-term tailwinds and growth in government infrastructure spending. Its management expects a 16% jump in sales in fiscal 2021.
In addition, she has been remarkably successful in improving her financial flexibility. It has paid off more than $2.5 billion in debt over the past year, which has significantly reduced its financial leverage. Operating cash flow has grown by a staggering margin, averaging 18% over the past five years.
That said, the URI action remains one of the best value plays right now.
DR Horton (DHI)
DR Horton (NYSE:DHI) is one of the most prolific homebuilders operating in over 98 markets in the United States
It has an incredible track record of growing its EBITDA and revenue with double-digit margins over the past few years.
Nonetheless, its stock has taken a hit lately and it now trades at just 0.74 times forward sales. However, market conditions are robust despite rising mortgage rates.
During the second quarter, DHI disclosed that it had 33,900 homes in its order book and approximately 59,800 in inventory. Revenue in the quarter jumped 22% to $7.5 billion from $6.2 billion in the same quarter last year.
Average selling prices were $378,200, up 21% from the prior year period. As we move forward, the company expects revenue to fall in the range of $35.1 billion to $36.1 billion, up significantly from consensus estimates of 35, $33 billion.
As of the date of publication, Muslim Farooque had (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 publishing guidelines.