Value stocks refer to shares of companies that are stable, reliable and deliver strong returns, steady growth and appreciating dividend payments.
They also are stocks that might be under performing relative to the broader stock market, making them good value for investors who can scoop up shares at depressed prices and then ride them higher over time.
Value stocks have come back into focus as the U.S. economy recovers from the global pandemic and volatility shakes stock markets around the world.
In this article, we look at seven of the best value stocks today:
- Procter & Gamble (NYSE:PG)
- Berkshire Hathaway (NYSE:BRK.B)
- Johnson & Johnson (NYSE:JNJ)
- Allstate (NYSE:ALL)
- Morgan Stanley (NYSE:MS)
- Kroger (NYSE:KR)
- Verizon Communications (NYSE:VZ)
Best Value Stocks: Procter & Gamble (PG)
Gillette razor blades, Tide detergent, Crest toothpaste and Bounty paper towels. These are just a few of the legendary brands made by Cincinnati, Ohio-based Procter & Gamble, a company that has been keeping American households running since 1837.
People buy Procter & Gamble products in good times and bad. And investors can rely on PG stock to provide steady and consistent returns. A true blue-chip stock, Procter & Gamble pays a reliable dividend to its shareholders, having increased its annual payout for 65 consecutive years. The dividend yield is now 2.49%. No wonder, this is a favorite stock of legendary value investor Warren Buffett (see below).
In addition to its rock-solid business model and consistent dividend payments, Procter & Gamble is a great long-term investment. PG stock has returned more than 70% to shareholders over the past five years. The share price rose 10% last spring as stock markets around the world swooned amid Covid-19 lock downs.
And, the company provides consistent and clear forward guidance to investors and is never shy about using its free cash flow to buy back its own stock, increasing the value of its shares in the process. Procter & Gamble’s stock is currently on sale, down 10% since the start of the year at $126.82.
Berkshire Hathaway (BRK.B)
What more can be said about Berkshire Hathaway and its CEO Warren Buffett? Widely regarded as the greatest investor of all-time, Buffett has taken a small textile company he purchased in 1964 and turned it into a major diversified conglomerate.
The firm today owns more than 60 businesses ranging from GEICO insurance to the Dairy Queen restaurant chain, and one of the largest stock portfolios in the world. Berkshire is one of the largest shareholders of companies ranging from Coca-Cola (NYSE:KO) to Apple (NASDAQ:APPL). To own BRK.B stock is to own a wide swatch of American business.
While Berkshire Hathaway does not pay a dividend, the company has been aggressive about repurchasing its own stock and the company’s share price tends to closely track the performance of the U.S. economy. For this reason, BRK.B is a cyclical as well as a value stock. And the company’s track record is hard to beat.
Between 1964 and 2019, Berkshire Hathaway’s stock return was more than twice the annualized return of the S&P 500 index. With the U.S. economy now emerging from the Covid-19 pandemic, Berkshire Hathaway’s stock has been breaking out, up 15% year-to-date at $260 a share.
Johnson & Johnson (JNJ)
Like Procter & Gamble, healthcare and pharmaceutical giant Johnson & Johnson has a portfolio of consumer products that are household brands, including Band-Aid, Tylenol, Listerine, Benadryl and dozens more.
While the consumer products remain a core strength of JNJ stock, its revenue is concentrated in its pharmaceutical and medical device business. That business segment recently got a huge boost with the approval of Johnson & Johnson’s Covid-19 vaccine, which is now being processed and shipped all over the world.
Its business model and focus on healthcare makes Johnson & Johnson a bullet-proof company. The company churns out strong revenues and returns dividends to shareholders during boom and bust cycles. And the dividend payout represents a healthy 2.55% yield, or an annual payment of $1.01 per share. By way of comparison, the average dividend yield of S&P 500 companies is 1.48%.
JNJ stock hit a 52-week high in late January this year on anticipation of its vaccine’s regulatory approval. While it has since fallen back to $157.88 a share, the stock is up 42% in the last 12 months.
Insurance companies tend to represent good value for investors. This is because they generate a steady stream of cash through the premiums people pay month in and month out, and they are companies that are largely recession proof. People prioritize paying their health, auto, home and life insurance even when the economy is bad. And among insurers, Allstate is tops.
The suburban Chicago company is among the biggest personal insurers in the world, and it has actually benefitted from the global pandemic. How so? The reduction in travel and move to remote work has reduced Allstate’s auto accident payouts. This helped Allstate grow its revenue in 2020 by 3.9%, and increase its net income more than 25% for the year.
ALL shares currently trade at 8.6 times forward earnings, making them very affordable compared to many other stocks, especially technology plays. Plus, Allstate pays a decent dividend, yielding 2% annually. And, Allstate shares are ripe for the picking now at $111.59, down 5% from their 52-week high.
Morgan Stanley (MS)
The New York-based investment bank has seen its stock rise sharply since December when the Federal Reserve approved banks to resume stock buybacks beginning in the first quarter of this year. In short order, Morgan Stanley announced up to $10 billion in stock buybacks for 2021, equivalent to 8% of the stock’s market capitalization.
So far this year, MS stock is up 18% to just over $80 a share.
Beyond the buybacks, Morgan Stanley continues to be a leader on Wall Street and one of the most profitable investment banks. The company’s third quarter revenue was up 16.2% and its net income rose 25%.
Currently, MS stock trades at about 13 times earnings per share, making them fairly affordable. Going forward, Morgan Stanley should continue its strong performance as consumer spending bounces back and interest rates eventually rise. Plus, Morgan Stanley should realize gains from its acquisition and integration of E*TRADE Financial.
Food is non-negotiable for most people, making grocery retailers premier value stocks and a safe bet in any environment. And Kroger is among the very best grocery stocks to own.
The Cincinnati-based company that has been in operation since 1883 is today the largest supermarket chain by revenue, with 2,750 stores and more than 10 million customers who shop at its outlets on a daily basis. Beyond its grocery stores, Kroger also owns and operates 35 food production and manufacturing facilities and 170 jewelry stores. This diversification is one of the reasons why the aforementioned Warren Buffett holds KR stock in Berkshire Hathaway’s portfolio.
Eating at home while restaurants were closed and the bulk buying of groceries helped boost Kroger’s financials in 2020. The company’s revenue rose 14% and its earnings per share climbed 53% for all of last year. This solid performance led Kroger to boost its dividend 13%, the 14th-consecutive year it has raised its shareholder dividend, which now yields 2.3%.
The company also repurchased $1 billion of its own stock last year, and has nearly $2 billion of cash on hand. Despite all of this, KR stock has slid 11% since the end of January and is now trading at $34.46 a share.
Verizon Communications (VZ)
Among technology companies, Verizon Communications offers a lot of value. As the largest wireless provider in the United States, Verizon is in a great position to capitalize on the current roll out of 5G, which should help lift the companies revenues and earnings for many years to come. The company has said that it will provide 5G wireless service to more than 30 million American homes within the next eight years. While less than 20% of Verizon customers are currently on the company’s top end unlimited premium data plan, that number is expected to grow significantly as people seek lightning-fast 5G internet speeds.
Additionally, Verizon Communications is expanding its capabilities in video streaming, partnering with a wide range of content providers ranging from Walt Disney (NYSE:DIS) and Discovery Communications (NASDAQ:DISCA).
Add in cash flow that increased nearly 30% to more than $18 billion in 2020, and dividend yield of 4.2%, and there is a lot to recommend VZ stock. No wonder that Verizon was one of Warren Buffett’s most recent stock purchases. At its current price of $56.20 a share, Verizon stock looks like a steal.
On the date of publication, Joel Baglole held long positions in BRK.B and DIS.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.