There’s nothing like a market correction to remind you of the type of investor you are. It’s never easy to watch the value of your portfolio drop by 10%, 20% or more. However, in volatile markets the security of value stocks rises to the forefront of investors’ minds.
The market correction brought on by the novel coronavirus has affected all classes of stocks. Value stocks have not been immune to the market selloff. But in the process, many quality companies are posting share prices that are at deep discounts to recent levels.
Is this a “buy on the dip” opportunity? That may depend on your strategy, says Stephen Rush, a chartered financial analyst at Bowling Green State University. In an email to InvestorPlace, Rush said that “recent market movements do not provide meaningful signals on the future of value.”
Rush went on to say, “Value does perform well in the midst of changing estimates since growth prospects are more likely to affect growth stocks than value stocks. Only long-term investors are expected to realize benefit from value investing.”
That sounds like a strategy that Warren Buffett could endorse. The Oracle of Omaha has made his fortune with value-based investing. With that in mind, here are three value stocks that are trading at a discount to their fundamentals and are ideal for long-term investors.
Value Stocks: Disney (DIS)
Year-to-Date Loss: 33%
The recent rebound in the S&P 500 has made the year-to-date loss in Disney more noticeable. DIS stock is down over 30% in 2020 and is likely to face continuing uncertainty throughout the year.
Both Walt Disney World (Orlando, Florida) and Walt Disneyland (Anaheim, California) are in areas that are being hit hard by the coronavirus. It would seem unlikely that either park will return to business as usual anytime soon.
And after an initial surge of subscribers for its Disney+ streaming service, the company is in a holding pattern. Many customers are on free trials. Disney must wait for those free trials to expire to determine how much churn it will have.
But while the short-term outlook is bleak, Disney is a company that has been counted out time and again. Disney stock’s woes are well priced into the stock.
Yes, things could take longer to rebound than we know right now. But in time, pandemic fears will recede. Are families going to flock to theme parks anytime soon? Probably not in 2020, and traffic will likely continue to lag in 2021.
But a bet against Disney is a bet that attendance won’t come back at some point. That’s not a bet I’m willing to make.
Colgate-Palmolive (CL)
Year-to-Date Return: 1.1%
After initially succumbing to the broad selloff, CL stock has bounced back. Currently CL stock is up 1.1% for the year. That well outpaces the S&P 500.
As consumers look to stock up in order to shelter in place, they are creating increased demand for the company’s products. This includes popular brand names like Colgate and Palmolive.
CL stock is trading slightly below its 50-day and 200-day moving averages. The stock is also registering a 48 on the relative strength index. Recently, the stock is drawing bullish interest from hedge funds. This may reflect the fact that investors believe the current social distancing practices may be in place for some time to come.
But for value investors, Colgate-Palmolive is a dividend king, meaning it has increased its dividend every year for at least 50 years. With the Federal Reserve’s federal funds rate near zero, a dividend like that is appealing to investors looking for income wherever they can get it.
Coca-Cola (KO)
Year-to-Date Loss: 17%
Coca-Cola stock is up almost 20% since hitting a bottom on March 23. As the nation continues to expand the length of our social distancing, investors may be looking to KO stock for short-term growth. But the story of Coca-Cola is about its broader portfolio. The company is about more than just its flagship soft drinks which are falling out of favor.
The Kantar Group recently cited that Coca-Cola is the fastest growing fast-moving consumer goods (FMCG) in China. This was a significant achievement because the study has been dominated by Chinese brands in the past. And in a separate study, Coke topped the “billionaire” brands. That means of the 17 brands that are purchased by consumers at least one billion times per year, Coke was the leader.
Some will look at Coca-Cola’s price-earnings ratio and suggest that the stock is far from cheap. However, it’s hard to ignore the diversity of the company. And with a dividend that has increased every year for the last 58 years, that’s income that investors can take to the bank.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. As of this writing, Chris did not hold a position in any of the aforementioned securities.
