The recent sell-off in the markets was brutal. And much of the pain was with technology and biotech companies. But this may be presenting some interesting opportunities. In fact, this could mean that the timing could be right to consider value stocks.
Value stocks have been out of favor for quite some time. After all, it is extremely tough to get the attention of investors when growth plays have done so well by comparison.
But then again, value stocks can still see strong gains. There are also other benefits, such as attractive dividend yields. This is definitely an advantage as interest rates have spiked recently.
So, what value stocks look good right now? Well, let’s take a look at seven:
- Rio Tinto (NYSE:RIO)
- Bank of New York Mellon (NYSE:BK)
- MetLife (NYSE:MET)
- CVS Health (NYSE:CVS)
- Amdocs (NASDAQ:DOX)
- Verizon (NYSE:VZ)
- Valvoline (NYSE:VVV)
Value Stocks: Rio Tinto (RIO)
Rio Tinto is one of the world’s largest miners. Just some of its lines of business include iron ore, aluminum, copper, titanium and even diamonds.
Keep in mind that the business is highly profitable. During the past year, the EBITDA came to a hefty $23.9 billion.
The company’s scale is certainly a major advantage. But there are secular trends that are driving growth, such as the increased demand for commodities for electric vehicles (EVs), smartphones and renewable energy systems.
RIO stock has pulled off a strong rally during the past year, going from $29 to $83. Yet this should not be the end of the upside. The valuation on RIO stock is still reasonable, with the forward price-to-earnings ratio of 9X and the dividend at an attractive 5.1%.
Bank of New York Mellon (BK)
But this does not mean that the company lacks creativity or innovation. For example, BK is in the process of retooling its custody infrastructure to manage client holdings of cryptocurrencies. This could represent a nice growth opportunity for the long haul.
In the meantime, BK stock has the benefit of stable fee income from its huge asset base, which is over $41 trillion. Last year, the revenues were $12.7 billion and the net income was $3.6 billion.
And yes, BK is a value stock, with the forward price-to-earnings ratio is 11X and the dividend is 2.8%.
For life insurers, the low-interest rate environment has been challenging. But for Metlife, the company has been able to effectively deal with this.
First of all, it helps that it has a massive global platform. This has allowed for more diversification. Next, Metlife has several major business lines like group benefits, retirement and income solutions, and property & casualty.
Then there has been an aggressive M&A strategy. For example, the company recently shelled out $1.69 billion for Versant Health, which is a top provider of vision-care benefits (there are 35 million members). With the deal, Metlife has become the No. 3 player in the U.S. market.
But the company has also been unloading other businesses so as to streamline operations. To this end, there was the sale of its car and home insurance business to Zurich Insurance Group for $3.94 billion.
As for MET stock, it is trading at attractive levels. The forward price-to-earnings multiple is 9X and the dividend yield is 3.1%.
In a recent episode of Saturday Night Live, there was a skit about Dr. Anthony Fauci, who was the host of a game show to give away vaccines. As for the sponsor? It was CVS.
It was hilarious. But it also highlighted that CVS is a critical part of the vaccine infrastructure.
And it is having a positive impact on the business. According to the latest earnings call, the company noted that it has administered over three million vaccines. This has also resulted in making connections with eight million new customers, providing CVS with their emails and phone numbers.
But it’s important to note that the company is much more than a pharmacy. It owns the Aetna health insurance business, which has a lucrative position in the Medicare market. There is also the pharmacy benefit management (PBM) solutions segment.
Despite all this, CVS stock is still trading at value levels. In terms of the forward price-to-earnings multiple, it is only about 9X.
Founded in 1982, Amdocs is a top provider of software and technology solutions for communications, media and financial services providers such as AT&T (NYSE:T), T-Mobile (NASDAQ:TMUS) and Comcast (NASDAQ:CMCSA). Its applications are in areas like billing, CRM (customer relationship management) and analytics.
The business is likely to benefit from several secular changes. First of all, there is the trend of digital transformation, such as with transitioning to next-generation technologies like cloud computing, microservices and AI. This has accelerated because of the impact of the novel coronavirus.
Next, there is the growth from 5G. This will mean that telecom carriers will need new technologies to penetrate markets like IoT (internet of things).
Although DOX stock has not reflected the potential from these trends, it does present a value opportunity for investors. The forward price-to-earnings multiple is 15X and the dividend yield is a decent 1.8%.
Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) recently acquired an $8.5 billion stake in Verizon stock. Of course, the investment has the key characteristics he is known to focus on. Namely, a strong brand, a competitive moat, hefty cash flows and stable businesses.
But there is something else that is interesting: the catalyst of 5G. This technology is likely to have a transformative impact, especially with business applications. 5G will make it possible to have highly automated factors as well as connected self-driving cars.
Verizon has certainly been investing heavily in this technology. During the most recent spectrum auctions, the company pledged a whopping $45.5 billion.
Regarding VZ stock, it is definitely affordable, with the forward price-to-earnings ratio at 11X and the dividend at 4.5%.
While there is a megatrend for EVs, the reality is that there will remain a huge number of traditional, internal combustion engine cars on the market. These will also continue to need services and products that a company like Valvoline provides.
Founded in 1866, the company is one of the top brands in the industry. Valvoline has a presence across more than 140 countries and it has about 1,400 quick-lube locations.
The company is also well managed. As a result, the profits have remained robust. What’s more, management also been focused on shareholder value. In the latest quarter, the company returned $81 million in dividend payments and share repurchases.
As for the valuation on VVV stock, it is reasonable. The price-to-earnings multiple is about 14X.
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 except for CVS.
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.