Markets have once again become volatile, pressuring a large number of growth stocks, such as Wall Street’s tech darlings. Therefore, many investors are looking for value shares that could shine in the coming quarters. Today’s article introduces seven value stocks for the new quarter that is upon us.
Over the past decade, growth stocks have brought juicy returns to portfolios. The past 12 months have also meant cheap money from the Federal Reserve and fiscal stimuli from the government, pushing growth stocks to record-highs. As a result, many investors feel the current valuation levels of these growth names are not quite sustainable. After all, no trend can last forever.
Now, as economies open up, most value stocks could benefit from a “return to normalcy.” Value names are typically established blue chip names with stable revenues, cash flows, as well as dividends. During market declines, they are usually not as volatile as growth shares.
Do you believe the price gap between value and growth stocks could narrow down in the rest of the year? If yes, then here are seven value stock to consider for long-term portfolios. With their wide moats, clean balance sheets and strong competitive positions, they deserve your attention. They are:
- Gilead Sciences (NASDAQ:GILD)
- International Paper (NYSE:IP)
- iShares Russell 1000 Value ETF (NYSEARCA:IWD)
- PPL (NYSE:PPL)
- Subaru (OTCMKTS:FUJHY)
- Unum Group (NYSE:UNM)
- Volkswagen (OTCMKTS:VWAGY)
Value stocks: Gilead Sciences (GILD)
52-week range: $56.56–$85.97
1-year price change: Down about 7%
Dividend yield: 4.4%
Foster City, California based Gilead Sciences develops therapies mainly for HIV, cancer and viral hepatitis diseases. The biopharma group played a central role in the Covid-19 pandemic, especially in the early months. Veklury, which is Gilead’s brand name of remdesivir, has treated a large number of hospitalized patients.
The company’s latest Q4 metrics show that the top line grew by 26% year-over-year (YoY) to $7.42 billion. The catalyst was the soaring Veklury sales. Non-GAAP net income almost doubled to about $2.8 billion. Diluted earnings-per-share (EPS) jumped from $1.10 in Q4 2019 to $2.19 in fourth-quarter 2020. At the end of 2020, Gilead had $7.9 billion of cash and equivalents.
Management expects a gradual recovery in underlying market dynamics starting Q2 2021. Yet, the company’s two HIV drugs (i.e., Truvada and Atripla) lost exclusivity in the U.S. and sales are expected to continue to decline in the near future. The 2021 full year total revenue guidance currently stands between $23.7-25.1 billion. In 2020, it was $24.4 billion.
CEO Daniel O’Day said, “As we head into 2021, we have many additional opportunities to help patients, especially in oncology where Trodelvy, for example has the potential to treat a broad range of cancer types. These new opportunities, together with our continued leadership in antivirals put Gilead on a clear path to growth.”
GILD’s forward price-to-earnings (P/E) ratios and price-to-sales (P/S) stand at 8.97 and 3.3, respectively. With its impressive portfolio of assets, 2021 might become the year the company generates excitement among more investors.
International Paper (IP)
52-week range: $26.64 – $56.98
1-year price change: Up about 79%
Dividend yield: 3.98%
Our next stock is one of the most important players in its segment. The Tennessee-based International Paper manufactures packaging products and printing papers. The group operates through four segments: industrial packaging, global cellulose fibers, printing papers and consumer packaging. Increased e-commerce over the past decade as well as during the pandemic has provided significant tailwinds for IP.
The company released Q4 financials in early February. Net revenue was down from $5.5 billion in Q4 2019 to $5.2 billion in Q4 2020. The main reason was the decline in sales of the printing papers segment. As more people worked from home, there was less paper printed, due to digitalization trends. Net earnings dropped from $165 million to $153 million. Diluted EPS recorded was 39 cents. Free cash flow was $695 million at the end of the quarter.
CEO Mark Sutton cited, “In 2020, we returned $800 million to shareholders and reduced debt by $1.7 billion to enhance our financial strength, while continuing to strengthen our packaging business through targeted investments.”
For 2021, management anticipated continued strong demand for corrugated packaging and pulp. However, it did not provide any numeric guidance. IP stock’s forward P/E and P/S ratios are 14.99 and 1.04, respectively. I believe the shares could be a strong play on the expected economic growth in 2021. The company is also known for share repurchases as well as for increasing dividend payments annually.
iShares Russell 1000 Value ETF (IWD)
52-Week Range: $91.52 – $153.73
1-Year Price Change: Up about 77%
Dividend Yield: 1.95%
Expense Ratio: 0.19% per year
Our next choice is an exchange-traded fund (ETF), i.e., the iShares Russell 1000 Value ETF. The fund tracks the returns of the Russell 1000 Value Index. It gives access to U.S. businesses that are thought to be undervalued compared to its peers. This basket of securities could be appropriate for investors who wish to emphasize value stocks over growth shares.
IWD started trading in May 2000 and currently has 848 holdings. Net assets stand around $49.5 billion. As far as sector weightings are concerned, financials leads the ETF with 20.48%, followed by industrials (13.59%), and health care (12.57%). The top ten names have approximately equal weights and make up around 17% of net assets. Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B), JPMorgan Chase (NYSE:JPM), Johnson & Johnson (NYSE:JNJ), and Walt Disney (NYSE:DIS) head the list of stocks.
IWD is a stable dividend payer consisting mainly of blue chip stocks. As we approach another earnings season, there could be volatility in the names that make up the fund. A potential decline toward the $140 level would improve the margin of safety. Long-term investors should keep it on their radar.
52-week range: $21.20 – $30.94
1-year price change: Up about 80%
Dividend yield: 5.8%
Allentown, Pennsylvania-based PPL is the parent company of seven regulated utility companies in the U.S. and the U.K. It delivers electricity in the U.K., Pennsylvania, Kentucky and Virginia. It also supplies natural gas in Kentucky. Additionally, its daughter company, Safari Energy provides solar power solutions for commercial customers in the U.S.
PPL announced Q4 results in mid-February. Operating revenue was $1.9 billion, a decline of 1.2% YoY. Net income was $290 million, down 20% YoY. Diluted EPS was 38 cents, down 22.4%. Cash and equivalents at the end of the year were $708 million, down 13% YoY.
CEO Vincent Sorgi stated that over the past year the company has completed more than $3 billion in infrastructure improvements and advanced its clean energy strategy.
The company has recently announced the upcoming sale of its U.K. segment, Western Power Distribution (WPD), to National Grid (NYSE:NGG). The cash deal is worth $10.8 billion. In other words, going forward, the company’s focus will be the U.S. The stock’s forward P/E and P/S ratios are 11.86 and 2.94, respectively. PPL’s dividend-growth record extends over two decades. Long-term investors could buy the dips.
52-week range: $7.61 – $12.49
1-year price change: Down about 1%
Dividend yield: 2.6%
Tokyo, Japan-based Subaru Corporation is best known for its namesake Subaru automobiles. The group operates through two business segments. The automobile segment manufactures cars and parts for repairs. A vast majority of the sales is derived from North America. The aerospace segment manufactures aircraft and space-related equipment and parts.
Subaru announced consolidated financial results for the first nine months of the fiscal year ending March 31, 2021. Global vehicle sales continued to show a recovery trend since the second quarter, posting a year-over-year increase in the October-December period.
Revenue for the April-December 2020 period was 2.08 trillion JPY, a 16.5 % decline YoY. Operating profit for the April-December 2020 period decreased 35.6% to 98 million JPY. Net profit declined 33.6% to 74 million JPY. Analysts concurred that the company overall has a strong balance sheet.
Subaru recently decreased its production plans by around 58,000 vehicles mainly due to the global semiconductor shortage. This move represents a decline of 6.6% in its production plan for this fiscal year. “We have a limited lineup and use a number of common parts. That’s why we are susceptible to a parts shortage,” CFO Toshiaki Okada delcared.
The chip shortage has meant volatility in the share prices of most car manufacturers. Yet, Subaru has a history of strong financial performance along with free cash flow generation. FUJHY stock’s forward P/E and P/S ratios are 10.39 and 0.59, respectively. Any decline toward $9.5 would signal an opportunity to buy the stock. With a market capitalization (cap) of about $14.9 billion, the company still has room to grow.
52-week range: $12.60 – $30.34
1-year price change: Up about 65%
Dividend yield: 4.34%
Unum is a leading provider of financial protection benefits in the U.S., as well as the U.K. and Poland. It is also the largest provider of disability income worldwide. In recent quarters, Unum has been increasing its offering of voluntary benefit plans, such as dental and vision products. Over the years, the company has built a strong brand and a resilient global operations network.
The group released Q4 metrics in early February. Total revenue was $4.3 billion, a 40.8% YoY growth. Net earnings on the other hand, were down by 54.3% YoY to $135.4 million. Diluted EPS declined from $1.44 in Q4 2019 to 66 cents in Q4 2020. The company’s cash stands at $1.5 billion.
The second wave of the pandemic has meant higher mortality rates. In addition, increased unemployment levels have hurt the sales of employee benefits, leading to decreasing premiums. Thus, management now expects a modest decline in after-tax adjusted operating income per share for full-year 2021. Yet, Unum anticipates a strong recovery in after-tax adjusted operating income per share in the second half of 2021 as the vaccine rollout means a substantial decline in the pandemic.
Unum stock’s forward P/E and P/S ratios are 6.02 and 0.44, respectively. As the Covid-19 pain continues to ease, 2021 could easily become the year when the shares see a significant run-up in price.
52-week range: $12.24 – $48.72
1-year price change: Up about 171%
Dividend yield: 2.1%
Wolfsburg, Germany-based Volkswagen is one of the world’s largest automotive manufacturers. Car brands include Volkswagen passenger cars, Audi, Bentley, Bugatti, Lamborghini, Porsche, SEAT, and Skoda. Commercial vehicle brands include MAN, Scania, and Volkswagen.
It announced strong 2020 fourth quarter and full year results in late February. Sales revenue was 222.9 billion euro in 2020, down 11.8% from 252.6 billion euro in the previous year. Operating profit decreased to roughly 10.6 billion euro in 2020 from 19.3 billion euro a year ago. Earnings per ordinary share were 16.60 euro.
Frank Witter, member of the Group Board of Management responsible for Finance and IT, said, “We intend to carry over the strong momentum from the significantly better second half into the current year, and the programs for reducing our fixed costs and in procurement will make us more robust in the long term.”
In December, VW was one of the first car makers to warn about the global chip shortage. As a result, the group has decreased production. Despite such supply-side headwinds, management has been investing in its European electric vehicle (EV) operations. By the end of the decade, it expect to deliver over a million EVs annually in Europe.
In recent days, Volkswagen announced its upcoming battery and charging strategy. It now plans “to build six cell factories with a total capacity of 240 gigawatt hours in Europe by the end of the decade. The Group is also driving the expansion of the public fast-charging network in Europe, China and the USA.” Investors were thrilled with the news.
VWAGY stock’s forward P/E and P/S ratios stand at 12.41 and 0.83, respectively. Considering Volkswagen’s ambitious EV plans, the share price offers value for buy-and-hold investors.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.