Given the recent volatility in broader markets, many investors are wondering whether 2021 might be the year when value stocks shine again. Over the past decade, growth stocks have provided tailwinds for juicy returns seen in indices. Therefore, value stocks now have considerable catching up to do.
Top growth stocks of the past year mostly benefited from increased digitalization trends resulting from novel coronavirus pandemic lockdowns. On the other hand, most value stocks could now benefit from a “return to normalcy.” Value stocks typically come from the universe of well-established blue chips with stable growth patterns. They are not as vulnerable to volatility as growth stocks during a market correction. Their business stability and dividend payouts provide some level of protection.
Many analysts are now drawing comparisons between the current valuations of growth stocks and the dot-com bubble of the late 1990s. They highlight that value stocks in general outperformed tech stocks in the early 2000s, following the bursting of the bubble.
So, do you also believe the price gap between value and growth stocks could narrow down in the rest of the year? If so, here are seven value stock to consider for long-term portfolios. I believe they have high-quality businesses as well as clean balance sheets and strong competitive positions.
- Altria (NYSE:MO)
- AT&T (NYSE:T)
- Bristol-Myers Squibb (NYSE:BMY)
- Fidelity MSCI Consumer Staples Index ETF (NYSEARCA:FSTA)
- Ford Motor (NYSE:F)
- iShares Russell 1000 Value ETF (NYSEARCA:IWD)
- Molson Coors Beverage (NYSE:TAP)
Now, let’s dive in and take a closer look at each one.
Hot Value Stocks: Altria (MO)
52-Week Range: $30.95 – $45.34
1-Year Price Change: Up about 12%
Dividend Yield: 7.89%
Richmond, Virginia-based Altria Group is one of the largest tobacco companies worldwide. It also owns Philip Morris USA. Its business segments include smokeable products, smokeless products and wine. Altria holds the leading position in cigarettes and smokeless tobacco stateside. The company’s Marlboro brand is the leading cigarette brand in the U.S. with more than a 40% market share.
Additionally, Altria reported fourth-quarter and full-year business results in late January. Net revenue was $6.3 billion, a 4.9% year-over-year increase. GAAP net earnings was $1.9 billion, compared to net loss of $1.8 billion in the prior year period. Adjusted diluted earnings per share (EPS) was 99 cents, representing a 2% decline from the prior year quarter.
“Our tobacco businesses were resilient and we made steady progress toward our 10-year Vision to responsibly transition adult smokers to a noncombustible future.” Billy Gifford, Altria’s Chief Executive Officer, said. “Our plans for the year ahead include accelerating investments in support of our 10-year Vision, which we expect to fund through the continued financial strength of our tobacco businesses.”
Investing in a tobacco company might not meet the objective all market participants. Those who are ready to commit capital into MO stock should remember that the industry has historically been very resilient. Fewer people typically consider quitting smoking during periods of stress or recession. MO stock’s forward price-earnings (P/E) and price-sales (P/S) ratios are 9.5 and 3.89, respectively. Interested investors could consider buying around these levels.
52-Week Range: $26.08 – $38.22
1-Year Price Change: Down about 20%
Dividend Yield: 7.24%
Texas-based AT&T operates in telecommunications, media and technology. Its segments include AT&T Communications, WarnerMedia and AT&T Latin America. The fourth-quarter financial results showed revenue of $45.7 billion, down 2.3% YOY. Adjusted earnings per share for the quarter was 75 cents, down 15.7% YOY. However, free cash flow stood at $7.7 billion, a figure that pleased analysts.
CEO John Stankey said, “We ended the year with strong momentum in our market focus areas of broadband connectivity and software-based entertainment. […] And the release of Wonder Woman 1984 helped drive our domestic HBO Max and HBO subscribers to more than 41 million, a full two years faster than our initial forecast.”
Forward P/E and P/S ratios are 8.88 and 1.17, respectively. In 2020, high debt levels were a drag on T stock’s performance. As a result, the valuation level is enticing and the dividend yield is over 7%. I find value in the shares.
Hot Value Stocks: Bristol-Myers Squibb (BMY)
52-Week Range: $45.76 – $67.16
1-Year Price Change: Up about 4.5%
Dividend Yield: 3.2%
Pharma giant Bristol-Myers Squibb offers products for a range of therapeutic classes, including virology (such as the human immunodeficiency virus or HIV infection), oncology, immunoscience, and cardiovascular. Its blockbuster drug sales are impressive. Cancer drug Revlimid’s sales have been continuously increasing over the past several years. Also, cancer immunotherapy Opdivo is expected to generate around $7 billion in annual sales.
The group reported fourth-quarter and full-year business results in late January. Revenue was $11.1 billion, an increase of 39% YOY. The increase was primarily due to the positive impact of the Celgene acquisition. Non-GAAP net earnings were $3.3 billion, or $1.46 per share. A year ago, the numbers had been $2.4 billion, or $1.22 per share.
“In our first full year as a new company we delivered solid operational and financial results, and laid a strong foundation for the future,” Giovanni Caforio, M.D., chief executive officer of Bristol Myers Squibb said. “The growth opportunities from our in-line and launch portfolios combined with a robust product pipeline and disciplined business development strategy strongly position the company to accelerate the renewal of our portfolio and achieve long-term sustainable growth.”
BMY stock’s forward P/E and P/S ratios are 8.01 and 3.19, respectively. These metrics show a cheap valuation by historical standards. As Bristol-Myers Squibb took on debt to complete its Celgene acquisition, investors have been concerned about the balance sheet. However, with its strong cash flow, the company should be able to pay down its debt. As a result, BMY stock could offer positive returns.
Fidelity MSCI Consumer Staples Index ETF (FSTA)
52-Week Range: $28.75- $40.78
1-Year Price Change: Up about 14%
Expense Ratio: 0.08% per year
Our next discussion centers around an index fund. The Fidelity MSCI Consumer Staples Index ETF invests in the consumer staples sector. FSTA, which has 99 holdings, tracks the returns of the MSCI USA IMI Consumer Staples Index. The fund started trading in October 2013 and has around $851 million in net assets.
According to the sub-sectoral breakdown of the ETF, beverages and household products have highest portions in the ETF with 23.59% and 23.09%, followed by food and staples retailing sector with a 20.91% slice. The top ten names for over% of all holdings in the fund. Among the leading names are Procter & Gamble (NYSE:PG), Walmart (NYSE:WMT) and Coca-Cola (NYSE:KO).
Since the start of the year, the fund is down about 3%. Valuation levels in many sectors of the S&P 500 are at extremely high levels. Yet, the consumer staples segment is not one of those segments. I’d regard dips in price as a good opportunity to buy FSTA.
Hot Value Stocks: Ford Motor (F)
52-Week Range: $3.96 – $12.40
1-Year Price Change: Up about 72%
Dearborn, Michigan-based automotive group Ford Motor needs little introduction. In addition to a full line of Ford cars, trucks, and sport utility vehicles (SUVs), it also manufactures Lincoln luxury vehicles. Management also has ambitious plans to become a leading player in electric vehicle (EV) sales.
Ford reported fourth-quarter and full year results in early February. Revenue fell 9% to $36 billion due to pandemic-related lower sales volume. However, Ford managed to offset this down trend with higher net pricing and a diverse product mix. Adjusted EBIT margin increased to 4.8%, up from 1.2% a year ago.
GAAP net loss was $2.8 billion, compared to net loss of $1.7 billion in the prior year quarter. Adjusted diluted EPS was 34 cents. A year ago, it had been 12 cents. Adjusted free cash flow came at $1.9 billion.
“The transformation of Ford is happening and so is our leadership of the EV revolution and development of autonomous driving,” CEO Jim Farley said. “We’re now allocating a combined $29 billion in capital and tremendous talent to these two areas, and bringing customers high-volume, connected electric SUVs, commercial vans and pickup trucks.”
F stock’s forward P/E and P/S ratios at 10.64 and 0.37, respectively. The shares might appeal to investors who are looking to invest in the EV space without paying high valuations.
iShares Russell 1000 Value ETF (IWD)
52-Week Range: $85.17 – $148.15
1-Year Price Change: Up about 22%
Dividend Yield: 1.5%
Expense Ratio: 0.19% per year
Our next choice is another ETF, i.e., the iShares Russell 1000 Value ETF. IWD tracks the returns of the Russell 1000 Value Index, and dives access to large- and mid-cap U.S. businesses that are thought to be undervalued by the market relative to peers.
IWD began trading in May 2000 and currently has 849 holdings. Net assets stand around $43 billion. As far as sector weightings are concerned, financials leads the ETF with 19.54%, followed by health care (13.61%), and Industrials (13.11%). The top ten names have approximately equal weights and make up around 15% of net assets. Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B), JPMorgan Chase (NYSE:JPM) and Johnson & Johnson (NYSE:JNJ) head the list of stocks.
After seeing a 52-week high on Feb. 24, IWD price has been under pressure in recent days. IWD is a stable dividend payer with blue chip stocks. Long-term investors should keep it on their radar.
Hot Value Stocks: Molson Coors Beverage (TAP)
52-Week Range: $32.11 – $56.10
1-Year Price Change: Up about 12%
Golden, Colorado-based Molson Coors Beverage owns a range of well-know beer brands, including Carling, Coors Light, Miller Lite, Molson Canadian and Staropramen, as well as craft and specialty beers. It is one of the largest beer producers globally.
Molson Coors reported results fourth-quarter and full year on Feb. 11. Q4 net sales decreased 8.3% in constant currency to $2.3 billion. Lockdowns due to the pandemic had affected sales in Europe and Canada negatively. Fourth quarter non-GAAP EPS was 40 cents, a 60.8% decline from the prior year period. Free cash flow was $1.4 billion for the twelve months in 2020.
CEO Gavin Hattersley said, ” We built on the strength of our iconic core and in the second half of 2020, we achieved a record high portion of our U.S. portfolio in above premium products. We expanded beyond the beer aisle and we set the stage to build our emerging growth division into a $1 billion revenue business by 2023.”
As economies start opening up, Molson Coors should see increased alcohol sales. It also has a partnership with cannabis group Hexo (NYSE:HEXO), which could benefit TAP stock in the long-run. The stock’s forward P/E and P/S ratios stand at 11.25 and 1, respectively. Buy-and-hold investors could find value at these levels.
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.