It may seem like value stocks are simply no longer relevant. After all, 2020 was dominated by market narratives in which traditional metrics-based investment had no place. A minor tailwind in a hot sector seemed to be reason enough to send capital flowing into innumerable fundamentally suspect stocks.
so far, 2021 has shown an exacerbation of 2020’s wild market behavior. Meme stocks are but one example of trends seemingly become more detached from any sense of market normalcy.
Yet, the recent tech sell-off provides some indication that markets are returning to a more value-based capital influx. To that end, let’s have a look at seven value stocks that our analysis shows are poised to reward investors:
- Atmos Energy (NYSE:ATO)
- General Electric (NYSE:GE)
- General Motors (NYSE:GM)
- JPMorgan Chase (NYSE:JPM)
- Microsoft (NASDAQ:MSFT)
- Apple (NASDAQ:AAPL)
- AbbVie (NYSE:ABBV)
Value Stocks: Atmos Energy (ATO)
Atmos Energy is a natural-gas only pipeline and storage operator. The company manages a proprietary pipeline which serves more than 1,400 communities across eight states. Atmos Energy is a solid, dependable company with strong results.
Operating income at the company increased to $298.8 million in the last three months of 2020. The same period in 2019 produced $252.8 million in operating income. The company is among the dividend aristocrats, and has declared an annual dividend for fiscal year 2021 of $2.50. That figure represents an increase of 8.7% over 2020.
Atmos Energy has not reduced its dividend since 1983 to be precise. Nor is there any reason to believe that it should any time soon. That’s because the company’s dividend payout ratio is a very healthy 0.46.
On top of the healthy dividend, which is in and of itself rewarding to investors, the shares are also expected to appreciate in price. Wall Street believes ATO stock deserves an average target price of $102.90. That’s a good bit higher than current share prices of $94.
General Electric (GE)
General Electric has been an embattled company for quite some time. But under new leadership the company has seen improvements. In fact, patient investors who’ve held GE stock over the past year have seen price appreciation in excess of 100%. That should be testament to the fact that the company’s turnaround strategy is bearing dividends.
A big part of that strategy includes a commitment to reducing the debt it carries on the balance sheet. GE recently took a huge step in reducing that $80 billion in debt by $35 billion. It will do so further by offloading its jet-leasing business to AerCap (NYSE:AER). That will bring its debt down to roughly $45 billion. GE plans to bring that figure to $30 billion around 2023.
The company’s valuation ratios don’t indicate that it’s a spectacular deal, but its P/E ratio of 23.19 is middle of the road.
The important thing is that GE is undergoing a transformation under competent leadership. While the analysts covering the equity are mixed in their opinions, more are favorable than not.
CEO Larry Culp commented “We are on a positive trajectory in 2021 as momentum builds across our businesses and we transform to a more focused, simpler, and stronger industrial company.”
I believe investor capital will flow back into industrial stocks like GE soon. In fact, many believe the pivot is already underway, myself included. I’d also agree with my InvestorPlace colleague Thomas Yeung who sees the company’s recent 8-for-1 stock split as a sign of confidence from management in the company moving forward.
General Motors (GM)
General Motors is garnering a bit more attention of late. The recent tech sell off has taken attention away from electric vehicle stocks like Tesla (NASDAQ:TSLA) and placed it in more traditional car manufacturers with EV exposure.
There are a few other important factors to consider which are very pertinent to the current narrative for GM stock. There’s a chip shortage which is affecting the automotive sector, and another traditional car manufacturer is signaling strong EV intentions.
Both GM and Ford (NYSE:F) have indicated that the chip shortage will have a significant negative effect on operating profit. However, GM announced at the end of February that it believed the worst of the shortage had passed and that guidance of $10 billion to $11 billion in pre-tax profit may indeed be achievable.
GM is a value stock in the sense that it carries a price-to-earnings ratio better than almost 80% of the vehicle industry. Yet, it is transitioning toward becoming an all-electric vehicle manufacturer by 2035. GM will release the all-electric Hummer this year and my guess is that capital is going to flow into ‘less-risky’ GM shares. There are a lot of reason to believe a lot of reward will come to investors in GM soon.
JPMorgan Chase (JPM)
JPMorgan Chase is a solid stock and a smart play for investors looking to up their position in financial stocks. JPM stock is up 85.8% over the last year.
This is a strong sign despite worries that banks would suffer massive loan losses during the pandemic due to defaults. But the company had a strong year despite provisions that it had to make for loan losses. In fact, in the fourth quarter, the provision for credit losses led to a net benefit of $1.9 billion, compared to an expense of $1.4 billion a year earlier.
In Q4 JPMorgan Chase recorded $30.2 billion in net revenue, up 3%, and net profit of $12.1 billion, up 42%. JPMorgan’s Corporate & Investment Bank division was particularly strong recording net revenues which rose 17%, leading to an 82% increase in net income.
It speaks volumes that the company managed to report its highest profit levels in its history in the latest quarter. There are certain large banks to avoid generally, and especially so during the pandemic. JPMorgan Chase is not one of them.
Microsoft is a stock that exhibits characteristics of being both a value stock and a growth stock. After all, the company is mature, and MSFT stock is relatively dependable. Yet it continues to grow while bearing some of the hallmarks of value stocks, including a $2.24 per share dividend. However, given its forward P/E ratio better than 60% of its competitors and that dividend, let’s call it a value play.
MSFT stock is also a value stock that will reward investors. That’s partially because the massive company of 163,000 employees exhibits an ability to pivot despite that size. Whether it’s cloud, work or gaming, Microsoft seems to have an answer.
The results show that its efforts are working. Microsoft’s revenues rose from $69.96 billion in the six months ended Dec. 31, 2019, to $80.23 billion a year later. In the same period net income increased from $22.33 billion to $29.36 billion.
The recent dip in tech may be just the opportunity to pick up ultra-strong MSFT stock at a discount. The company’s Azure cloud platform is driving the company forward during a digital transformation and Microsoft has proven that it is a tech company that understands tech now and moving forward again and again.
Apple is similar to Microsoft in that it could be considered a growth stock or a value stock. The company is mature, exhibits stable growth, and it does pay a dividend (though this is rarely discussed). For those reasons, I’d argue it’s a value stock.
Apple is a victim of its own success. The company posted all-time high quarterly revenues of $111.4 billion, and diluted EPS of $1.65, up 35%. Yet, AAPL stock has only gone down since.
It does seem contradictory.
Yet, at the same time Apple did fail to issue guidance related to concerns about looming effects from the ongoing pandemic. Further, antitrust rumors related to its App Store policies can’t be helping.
I remain bullish on AAPL stock. The combined effects listed above, in conjunction with the tech sell off, make AAPL stock a great buy the dip opportunity. Some Apple Car news or any of a number of other unforeseen positives will send shares back up. There’s no other Apple, it’s as simple as that.
AbbVie may not be what springs to mind when investors think of value stocks. Yet, it is fairly valued and carries a forward P/E ratio that indicates it is indeed a bargain in the pharmaceutical industry.
The drug maker’s 2020 revenues amounted to $45.804 billion This was a year-over-year increase of 37.7%. AbbVie’s strongest business in 2020 was its immunology division, accounting for 48.38% of revenues.
AbbVie depends on rheumatoid arthritis treatment Humira for a majority of those revenues, however other immunology products, including Skyrizi and Rinvoq, more than doubled in 2020. AbbVie’s other businesses, including oncology and neuroscience, actually grew faster in 2020.
Part of AbbVie’s value appeal is that it carries a big dividend with a 5.03% forward dividend yield. Current investors are receiving a $1.30 dividend each quarter. The company has not reduced its payout since 2013, but it would be fair to speculate that it could happen. The dividend payout ratio is well above 1. That means the company has to search outside of earnings in order to pay that dividend. It is certainly well above the 35-55% healthy range for dividend payouts.
All in all though, there is tremendous value and reward in ABBV shares.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.