With the 2020 election less than four months away, investors have started looking for value stocks as a means to prepare for the unexpected.
They’re looking for investments that will succeed, no matter who eventually wins the 2020 White House race.
Finding the right stocks might seem daunting at first. But patient investors have an advantage. By selecting the best value stocks to buy, investors can profit no matter if Donald Trump or Joe Biden wins.
Why Value Stocks?
Value stocks, by definition, are stocks that are cheap relative to their underlying worth.
Investors often overlook companies that generate slow and steady returns. That’s because the best value stocks often exist in boring, mature industries. However, these hum-drum industries often turn profits in both good and bad times. That means the stocks within these industries have outperformed their peers by almost 4% annually since 1937.
When choosing the best value stocks for the 2020 election, investors should ask themselves three things. First, does the underlying company hold a strong position within its industry? In periods of uncertainty, wide moats are essential for long-term success. Second, does management have a good history of navigating the White House’s policies on trade? Getting hit with tariffs or taxes can hurt even the best companies’ bottom line. And finally, given the 45% rise in the S&P 500 since March, can you still buy shares of the company at a reasonable price?
Investors should also consider whom they think might win the election. The safest plays should endure regardless of who is elected. But, if you think Trump will be reelected, these value stocks in particular stand out as strong choices:
Here’s why each stock belongs on your radar as the 2020 election intensifies.
Best Value Stocks to Buy: Walmart (WMT)
Ecommerce has revitalized this once slow-moving behemoth.
Although Walmart was initially slow to embrace online shopping, it has made up for the lost time. Walmart acquired ecommerce startup Jet.com in 2016 for $3.3 billion and has spent the past several years integrating the technology into its brick-and-mortar network.
Walmart investors also have a hedge against U.S. uncertainty; international sales now make up 23% of total company revenues. Sales in China increased by 13.3% in 1Q20, with ecommerce sales jumping 160%. Sales in Canada and Mexico grew by 7.6% and 11.6%, respectively.
Priced at a reasonable 12.4x cash flow (P/CF), WMT stock remains relatively inexpensive. Investors looking for consistent cash flow should strongly consider this stalwart of global retail among the key value stocks to buy now.
Anheuser Busch (BUD)
The owner of Budweiser, Corona, Becks and others is set to recover post-coronavirus.
Global brewer Anheuser Busch has one of the largest and most efficient distribution networks globally. The company holds a dominant market share in the U.S. (48%), several European countries and seven different African markets.
Anheuser Busch also owns a 62% stake in Ambev (NYSE:ABEV), which holds near-monopoly dominance in many Latin American markets. In Brazil, the company generates almost 40% in EBIT margin.
After acquiring SABMiller in 2016, Anheuser Busch moved to create an impenetrable regional scale. The company now buys almost 10% of the U.S. rice crop.
The coronavirus pandemic has provided investors with a golden opportunity to invest in BUD stock. It’s a robust company that’s sure to endure for the long term, which makes it one of the more promising value stocks to consider today.
Total volumes in the first quarter of 2020 declined 5.8% when several countries (Mexico, South Africa and Peru) temporarily shut down brewery operations. But with its dominant worldwide presence, BUD stock will recover as the world economy gets back on track. Patient investors will reap the rewards.
Having recovered from early missteps in the coronavirus pandemic, MMM stock looks well-placed to navigate a rocky election year.
In early March, 3M found itself caught in the global fight for personal protective equipment (PPE). Facing a shortage of domestic PPE gear, the Trump Administration demanded 3M divert inventory from other countries. The company’s flat-footed response initially drew fire from the president. “We’re not happy with 3M,” Trump said in a March press conference. “And the people who dealt with it directly are not happy with 3M.”
3M quickly reversed course, coming to a “very amicable agreement” with the administration in early April that would bring more than 55 million masks to the U.S. every month.
Since then, 3M has deftly navigated the coronavirus pandemic. Sales in consumer products jumped 6.1% in 1Q20. Overall sales rose 2.7% despite a slowdown in manufacturing, where 3M generates over 1/3 of sales. The company is also well-hedged internationally, generating 60% of its revenue outside the U.S.
As a bonus to MMM stock investors, its shares are still reasonably priced. MMM stock trades at a reasonable 12.7 times cash flow (P/CF), compared to its 5-year average of 17.8 times. Its trailing dividend yield stands at 3.7%.
Exxon Mobil (XOM)
Undervalued Exxon Mobil stock remains a top pick for its best-in-class integration.
Despite a small recovery in oil prices since March, Exxon shares are still down 25% for 2020. These low prices provide investors a rare opportunity to buy one of the best-integrated oil majors in the world.
Exxon integrates almost 80% of its refining capacity with its higher-margin chemical manufacturing facilities. Not only do downstream facilities increase the value of Exxon’s crude oil. They also allow the company to switch and produce the most valuable feed stocks at any given time. In 1Q20, for instance, the company moved to maximize production of critical raw materials for masks, gowns and hand sanitizer.
The flexibility has rewarded Exxon’s shareholders handsomely. Despite producing just 25% more barrels per day than rival Chevron (NYSE:CVX), Exxon generated 83% more revenue and 390% more profits in 2019. Shares are also reasonably priced, at 13 times estimated 2022 earnings (P/E).
While a second Trump term may deepen battles between U.S. and China trade, Exxon’s well-diversified business and inexpensive valuation can help investors searching for value stocks to weather the storm.
Hanesbrands has proven itself as an expert in navigating international trade.
Hanesbrands, the owner of Hanes, Champion, Playtex and other notable clothing brands, remains well-positioned to survive a Trump reelection. Unlike many of its competitors, Hanesbrands has no production facilities in Mexico, Canada or China — countries targeted by the Trump administration for tariffs. Instead, the company maintains a diversified manufacturing base split between the U.S., Caribbean, Southeast Asia and Europe/Africa.
In April 2020, Hanes also began producing medical gowns and cloth face coverings. Under contract from the U.S. Federal Emergency Management Agency (FEMA), the U.S. government would then distribute the gear to hospitals and healthcare facilities. These moves have earned the Winston-Salem company the commendations of the president without alienating either Republican or Democrat consumers.
The company’s dominance in the mature inner-wear industry is a hallmark of reliable value companies. According to Euromonitor, the company holds a 36% market share in the United States, more than Fruit of the Loom and Jockey combined. In that segment, Hanes generates a healthy 20% operating margin. The company’s Champion brand has also provided an additional avenue of growth. Sales in activewear increased by 3.5% in 2019. “We think Hanes’ Champion brand has grown into a multinational athleisure brand with a significant following and increased distribution,” wrote David Swartz at Morningstar in a letter to investors.
Hanes’ international sales also continue to grow, increasing 7.9% in 2019. Priced at only 9.5 times 2021 estimated earnings (P/E), HBI stock remains a strong value stock to buy for investors looking to navigate the 2020 election.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing. As of this writing, he did not hold a position in any of the aforementioned securities.