This has been a banner year for growth stocks, to put it mildly. With the novel coronavirus serving as tailwind, rather than headwind, for big tech and e-commerce, these already richly-priced stocks now command even higher valuations. And even with a tough underlying economic environment, speculators keep betting on the future by buying electric vehicle and other megatrend stocks to new highs.
Where does that leave investors? Do you risk buying the top in the aforementioned “hot stocks?” Or do you go against the grain and buy stocks hard-hit by the pandemic, hoping for big gains on recovery?
It’s a tough choice between paying too much for what’s “hot,” and taking a risky contrarian position in what’s “not.” But how about something in the middle? That is to say, companies that aren’t having salad days right now, but aren’t racing to Washington for a bailout, either.
Running the gamut from industrial conglomerates to telecom giants, here are seven value stocks to buy for peace of mind:
- AmerisourceBergen (NYSE:ABC)
- Dell Technologies (NYSE:DELL)
- Intel (NASDAQ:INTC)
- 3M (NYSE:MMM)
- PPL Corporation (NYSE:PPL)
- Verizon Communications (NYSE:VZ)
- ViacomCBS (NYSE:VIAC)
These names cover a wide range of industries. But all of them currently trade at forward price-to-earnings (P/E) ratios well below the S&P 500’s (NYSEARCA:SPY) current forward P/E (around 22x).
Value Stocks to Buy: AmerisourceBergen (ABC)
With the pandemic top-of-mind, healthcare companies have performed solidly in the stock market recovery. But that doesn’t mean names like this pharmaceutical distributor have rallied to frothy valuations. Trading at just 12.5 times forward earnings, shares in AmerisourceBergen remain reasonably priced.
Granted, the company’s exposure to the opioid crisis may explain why investors aren’t willing to give ABC stock a higher multiple. With U.S. states pushing for a settlement of over $26.4 billion between several distributors and manufacturers, this company’s exposure could be in the billions.
Yet this bad news may already be more than priced-in. Further, JPMorgan’s Lisa Gill sees the latest development as a “favorable outcome.” How so? In her view, the exposed companies should see their shares “react positively” upon the final outcome, with the settlement helping to “put the uncertainty behind.”
Without opioid litigation hanging over its head, shares could move even higher. And while rival McKesson (NYSE:MCK) may see the biggest tailwind from coronavirus vaccine distribution, there may be opportunity for this company as well.
A boring company in an age of flashy “hot” stocks, consider value play ABC stock a buy.
Dell Technologies (DELL)
Dell has come a long way from the “Dude, you’re getting a Dell!” commercials of the early 2000s. Firstly, with its majority stake in VMWare (NYSE:VMW), this company is more than just the PC maker you remember from back in the day. In fact, rumors about the company’s plans with VMWare (either a spinoff or a buyout) has been a major catalyst as of late.
That’s not to say the legacy computer business segment hasn’t fared well. The “stay-at-home” economy has provided some benefit to this company. But even with these positives, Wall Street continues to give shares a rock-bottom valuation.
At just 10.6 times forward earnings, you could call this a “deep value stock.” Sure, as is the case with rivals like HP Enterprise (NYSE:HPE), tepid growth has been the main reason behind a low valuation. But while DELL stock has rallied since the March sell-off, multiple expansion could still be in the cards.
Whether via its rumored spinoff of VMWare, or another strategic move to realize underlying value, there’s much potential here. Consider shares a buy at today’s prices (around $60 per share).
When talking about semiconductor stocks, it’s all about Advanced Micro Devices (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA) right now. But while Intel has fallen behind its main rivals, there’s still ample opportunity at today’s prices.
Right now, INTC stock changes hands at a low forward P/E of 10.2. Granted, this low multiple takes into account the company’s anemic growth relative to its high-flying peers. As our own Dana Blakenhorn wrote August 11, the once innovative chip-maker is facing supply issues, having to outsource manufacturing to Taiwan Semiconductor (NYSE:TSM).
Meanwhile, its aforementioned rivals are charging ahead, putting the once-dominant Intel in a compromising position. Wall Street knows this full well, so the many risks with the company are more than priced into shares, especially at today’s valuation.
And while organic growth isn’t Intel’s strength, the company is doing what it can to deliver shareholder value. Whether that’s via the dividend (forward yield of 2.68%) or a recently-announced share buyback, INTC stock could bounce back from today’s low prices (under $50 per share) back up to prior price levels (above $60 per share).
With the worst priced-in, and the potential for shares to rally on an ounce of improvement, Intel is a value play in a sector filled with growth stocks.
This industrial conglomerate’s shares have made big improvement since March’s pandemic-driven sell-off. But while shares aren’t exactly cheap (forward P/E of 19.7), they aren’t exactly expensive either. And for good reason.
While it’s both “dividend aristocrat” and a perennial blue-chip, MMM stock is stuck trying to bounce back from past issues, including headwinds from before the outbreak. As I wrote back in June, the company saw sales and earnings declines during 2019.
The pandemic made things worse, with sales falling double-digits in April and May. But recent sales news may be a sign things are turning around for 3M. July sales rose 6% year-over year, driven by to the company’s healthcare unit.
As a major producer of face masks, this makes perfect sense. Yet while its N95 face masks are one its most ubiquitous products right now, that on its own isn’t a needle-mover for the multi-billion dollar conglomerate.
But as the U.S. exits lockdown and contends with recovery, there’s a lot of opportunity in buying MMM stock today. Shares have moved significantly off their lows, but with a 3.64% forward yield and the stock still below its pre-pandemic highs, this value play remains a low-risk opportunity in today’s overheated market.
PPL Corporation (PPL)
A few months back, I took a look at the many utilities stocks out there sporting hefty dividend yields. But while many major utilities offer strong yields for income investors, PPL stock is one of the best value and dividend plays in the space.
This lesser-known U.S.-based utility operates stateside (Pennsylvania and Kentucky), as well as in the U.K. (its largest operating unit). The company’s potential headwinds across the pond are partly to blame for its underwhelming performance.
But if everything were coming up roses for PPL, shares wouldn’t be so cheap. Granted, the stock has moved higher since I last wrote about it in July. But shares today still offer tremendous value. Between a 5.92% forward dividend yield, and a forward P/E of just 11.6, this remains one of the most-undervalued utilities stocks on the market.
Also with Berkshire Hathaway’s (NYSE:BRK.A,NYSE:BRK.B) energy unit, or another large utility name, potentially looking to buy PPL’s U.K. unit, shares could pop higher again if a deal gets done. Unloading this unit wouldn’t just take its problematic U.K. segment out of the picture; analysts such as Seaport Global’s Angie Storozynski see the company using any sales proceeds to fund share buybacks.
In short, plenty of good things coming out of PPL as of late. And with prices today around $28 per share still well below prior price levels (around $36 per share), there’s good reason to dive into this value play right now.
Verizon Communications (VZ)
Telecom stocks like Verizon and AT&T (NYSE:T) are a great opportunity for income investors. In an age of near-zero interest rates, it’s tough to find stocks with yield. And with stable operating businesses, major telecom names deliver when it comes to dividends.
However the nice dividend (4.17%) isn’t the only reason to consider VZ stock at today’s prices (around $59 per share). Yes, at a forward P/E ratio of 12.4, shares trade at a premium to major rival AT&T (forward P/E of 9.3). However, there’s some reason behind this valuation discrepancy. AT&T has been burdened with more debt from its prior TimeWarner acquisition, and as seen through recent mass layoffs at the media unit (now called WarnerMedia), it’s still trying to make that deal pay off.
On he other hand, Verizon? Sure, the company’s balance sheet contains a fair amount of debt. But with less leverage than AT&T, there’s lower dividend cut risk here.
Further, the company has many peers in the telecom space trading at higher valuations. As my colleague Mark Hake wrote August 20, based on multiple valuation calculations, the stock could be worth around $91 per share. In other words, more than 50% potential upside from today’s prices.
Don’t expect this stable dividend play to go parabolic anytime soon. But with shares massively undervalued, VZ stock could continue to trend higher in the next few quarters.
In the age of streaming, “old school” media conglomerates like ViacomCBS may seem like dinosaurs. But given the many streaming platforms in its portfolio, calling this company a “dinosaur” is a bit premature.
At the start of the pandemic, shares cratered as the ad market collapsed. But since April, shares have made an epic recovery, bouncing back from lows around $10 to around $27 per share today.
Yet even with this massive move higher, shares remain cheap at just 6.5 times forward earnings. But this could all change thanks to two major catalysts.
Firstly, the company’s potential in the streaming space. As this commentator recently wrote, the company hasn’t exactly struck gold with CBS All Access. But with rumored plans to revamp the platform, there’s potential for the company to gain share from rivals Netflix (NASDAQ:NFLX), and Disney’s (NYSE:DIS) Hulu unit.
But that’s not all. With its ad-based Pluto TV platform providing a great television substitute for cord-cutters, the company could see big segment growth. Especially as the ad market recovers post-pandemic.
Another factor that could help VIAC stock: the recent passing of Sumner Redstone.
With his daughter Shari now at the helm, the company could move in many directions. Either ViacomCBS continues takes Redstone’s “content is king” ethos into the streaming age. Or the Redstone family decides to cash out, selling its content-rich empire to a strategic acquirer.
What’s the most likely move? That remains to be seen. But with many pathways to upside (streaming catalysts, potential sales) and a low valuation, shares are a great deal at today’s prices.
Thomas Niel, contributor to InvestorPlace, has written single-stock analysis since 2016. As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.