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7 Value Stocks Ready for Rotation

value stocks - 7 Value Stocks Ready for Rotation

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In today’s markets, investors are mostly focused on red-hot growth stocks rather than value stocks. This week we saw further evidence of this with the staggering spikes in IPOs (Initial Public Offerings) from companies like DoorDash (NYSE:DASH) and Airbnb (NASDAQ:ABNB). It looks like that next year will also see continued momentum with new offerings. There are definitely plenty of unicorns ready to hit the markets.

But growth stock investing can get too exuberant. The classic case is the dot-com boom, which ultimately resulted in huge losses for investors. Let’s face it, there comes a time when the valuations get too stretched.

Because of this, it’s a good idea to also think of value stocks. They can be critical in balancing a portfolio. There are also opportunities to get nice dividend streams.

Let’s take a look at seven interesting value stocks:

    • NortonLifeLock (NASDAQ:NLOK)
    • Intel (NASDAQ:INTC)
    • AT&T (NYSE:T)
    • IBM (NYSE:IBM)
    • Valvoline (NYSE:VVV)
    • Ameriprise Financial (NYSE:AMP)
    • Vanguard Value ETF (NYSEARCA:VTV)

Value Stocks: NortonLifeLock (NLOK)

a smartphone running NortonLifeLock (NLOK) software
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Cybersecurity continues to be a growth industry, which will last for a long time.

Yet it is tough to find many value stocks in this sector. But there are still some equities with reasonable valuations worth considering. One is NortonLifeLock, which has a customer base of over 50 million consumers.

For the most part, the U.S. market is fairly mature. But there are certainly growth opportunities across the world. Currently, less than 30% of revenues for NortonLifeLock come from foreign markets. In other words, this represents a nice opportunity for the company. To this end, the company has been investing in partnerships with telecommunications companies.

In the latest quarter, the billings grew by 7% and the earnings per share jumped by 100%. The company is now generating annualized revenues of over $2.5 billion. The customer retention is at about 85% and the monthly revenue per user is over $9. The company has also been looking at ways to expand on the core security products, such as with a special offering for e-sports players.

In terms of the valuation, NLOK stock is trading at about 12.5 times forward earnings and the dividend is also attractive. The current yield is 2.6%.

Intel (INTC)

a magnifying glass enlarges the Intel logo on the company website
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Intel has a storied history as a disciplined growth company. But during the past few years, the company has lost quite a bit of momentum. There have been delays and quality problems with its next-generation chips. As a result, rivals like Nvidia (NASDAQ:NVDA) and AMD (NASDAQ:AMD) have been able to gain market share in key markets.

Despite this, investors should not lose faith in INTC stock. The company still has some great advantages like a powerful global infrastructure, talented engineers, a huge IP (Intellectual Property) portfolio and a massive customer base.

No doubt, Intel has been addressing its core problems. There has also been a rethinking of the strategy. It’s now more about software solutions – such as cutting-edge AI (Artificial Intelligence) and ML (Machine Learning) — and even outsourcing of manufacturing.

For the most part, the problems have already seem to be factored into INTC stock. It trades at only 9.6 times earnings. The dividend is also at 2.6%.

AT&T (T)

AT&T (T) logo on wooden background
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At the start of the year, Wall Street was upbeat on the prospects for AT&T. Consider that T stock was trading at close to $40.

But with the Covid-19 pandemic, the company lost its footing. The shares would go on to fall to a low of $28 in March. And unfortunately, they haven’t moved much since then.

Despite this, AT&T’s business does look healthy. The mobile segment continues to produce substantial amounts of cash flow. This should be boosted in the coming years because of the impact of the 5G network. The benefits will not just include consumer revenues but also growth areas like IoT (Internet-of-Things).

Another catalyst is the WarnerMedia segment. The company recently announced that it will stream its slate of 17 movies in 2021 on its HBO Max streaming platform when they are released for the big screen. This should lead to a nice jump in growth in subscriber numbers. Citi analyst Michael Rollins believes that this move could result in a $5 increase in T stock.

In the meantime, T stock continues to pay a hefty dividend, which is at 6.7%. Consider that the company has increased the pay out for 35 consecutive years. The shares also trade at only 9.2 times forward earnings.

IBM (IBM)

Sign of IBM with Canada Head Office Building in background in Markham, Ontario, Canada. IBM is an American multinational technology company.
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For the past eight years or so, IBM stock has been a laggard. The company has been slow to adept to new trends – like cloud computing – and has been weighed down by legacy systems.

But IBM management has not been sitting still. There have been some major changes at the company which should help get Big Blue back on track.

First of all, IBM has been focusing much more on cutting-edge technologies like AI and quantum computers. In the meantime, the company is spinning-off its infrastructure services unit. This will mean having more resources to focus on growth opportunities.

Next, the company has the advantage of a global infrastructure as well as a massive customer base.

So what about the cloud? Well, IBM has been taking an interesting approach. It’s more about the hybrid cloud. That is, the company is developing systems that use both on-premise and cloud technologies (a key part of this strategy was with the mega acquisition of Red Hat). This is often much more attractive for larger customers that do not want to rip out existing applications.

Note that IBM stock is trading at attractive levels, with the forward price-to-earnings ratio at 10.7x. The dividend yield is also at 5.1% — one of the highest among tech companies.

Valvoline (VVV)

valvoline (VVV) logo, a value stocks
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Valvoline is an iconic company, with its roots going all the back to 1866. But lately, things have stalled. For the past 12 months, VVV stock has essentially flat-lined.

Yet the company still has a solid business and growth is likely to pick-up as the economy improves. The company, which sells lubricants and automotive services, has a portfolio of standout brands. They include names like Valvoline Premium Blue, Valvoline High Mileage with MaxLife, Zerex antifreeze, Valvoline Multi-Vehicle Automatic Transmission Fluid and so on. These products are sold across more than 140 countries. The company also operates a franchise of about 1,400 quick-lube locations.

In the latest quarter, sales increased by 4% to $652 million and the adjusted EBITA rose by 16% to $150 million. The company has about $750 million in cash and liquidity of $1.3 billion.

As for VVV stock, it is trading at value stock levels, with the price-to-earnings ratio at 13x. The company recently increased the dividend by 11% — with the yield at 2.2% — and a new buyback authorization has been set for $100 million.

Ameriprise Financial (AMP)

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With interest rates at rock bottom levels, the financial services sector has seen low valuations. It is a tough environment to grow profits.

But for a company like Ameriprise Financial, the interest rate environment is actually a major positive. The company, which is a provider of financial planning services, is a beneficiary of the bull market in equity values.

And there are also some longer-term trends that should propel growth. With baby boomers retiring in large numbers in the coming years, there will be increased demand for sophisticated planning services.

No doubt, Ameriprise Financial is a well-run operation. Since 2012, the company has nearly tripled EPS (Earnings Per Share) and returned about $15 billion to shareholders. There are currently more than 9,000 financial advisors, who generate an average of $667,000 in adjusted net revenues. About 90% of the revenues are fee based.

As for AMP stock, the valuation is at 11 times forward earnings and the dividend yield is 2.2%.

Vanguard Value ETF (VTV)

a person looks at an upward trending graph labeled "VALUE" to represent value stocks
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When it comes to value stocks, some investors may not necessarily want to pick individual names. This is certainly fine. And the good news is that there are a variety of high-quality ETFs (exchange-trade funds) to choose from.

Take Vanguard Value, which has $81.4 billion in assets under management. The ETF is based on the CRSP US Large Cap Value Index, which covers a broad array of stock that have relatively low valuation metrics (say for price-to-earnings ratios). The portfolio has 329 stocks and some of the top holdings include Johnson & Johnson (NYSE:JNJ), Procter & Gamble (NYSE:PG), JPMorgan Chase (NYSE:JPM) and Verizon Communications (NYSE:VZ).

Another advantage is that the fee structure is low, which means that more of the gains go to shareholders. The expense ratio is a mere 0.04% of the assets.

On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling.  He is also the author of courses on topics like the Python language and COBOL.  


Article printed from InvestorPlace Media, https://investorplace.com/2020/12/7-value-stocks-ready-for-rotation/.

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