Every investor who gets long a stock or fund does so because they believe that the underlying asset or assets have value. We all want a good deal and we all want to make money. That’s why value stocks in particular intrigue a lot of investors.
Now more than ever, value stocks have been showing their worth. While high-growth stocks are getting crushed in a brutal bear market, many value names are doing just fine. And by doing just fine, I mean they’re actually hitting new all-time highs.
Given the run in value stocks, it may be difficult to find those picks that still have solid upside. However, that’s exactly what we’re digging for in this group.
Value stocks often come with a low or reasonable valuation and a dividend. That’s not always the case, but it’s fairly common. So, let’s look at a handful of stocks with some big opportunities ahead.
- Alibaba (NYSE:BABA)
- Bristol-Myers Squibb (NYSE:BMY)
- Wynn Resorts (NASDAQ:WYNN)
- Farfetch (NYSE:FTCH)
- Dropbox (NASDAQ:DBX)
- Box (NYSE:BOX)
- Micron (NASDAQ:MU)
Value Stocks to Buy: Alibaba (BABA)
Alibaba is not one of your typical value stocks — not by a long shot. Many will critique this pick as a growth stock or dismiss it because of its controversial position in China. That’s fine. Not every pick is a fit for every investor. But hear me out.
At this point, I think Alibaba is both a growth and a value stock. Shares are down about 32% from the highs it hit in fourth quarter 2020. BABA stock was charging higher ahead of the Ant Group initial public offering (IPO), which was halted at the last minute over regulatory issues.
Alibaba, which owns a one-third stake in Ant, topped out around that time and has had trouble regaining its footing since. That’s despite clearing most of its regulatory issues out of the way as well as a solid quarterly report.
That said, this company has a ton of growth remaining and its valuation is quite reasonable. In fact, compared to most of its United States-based mega-cap tech peers, Alibaba has a very low valuation. That’s despite revenue estimates calling for 30% sales growth this year and roughly 21% growth next year.
Sometimes, investors just need to buy when stocks are out of favor. Right now, BABA stock is quite out of favor. Should shares rally 50% from current levels, it will simply send Alibaba back to its prior highs.
Bristol-Myers Squibb (BMY)
Bristol-Myers Squibb just can’t seem to find any momentum. I don’t know why, but it seems like no one wants to own BMY stock.
That’s surprising, considering how many quality brands, medicines and treatments the company owns. This is particularly true after its massive acquisition of Celgene for $74 billion.
Of course, BMY has seen growth slow a bit, but the company still has solid prospects. For this pick of the value stocks, analysts expect 8.3% revenue growth this year and roughly 4% growth next year. That goes alongside 15.2% and 7.6% earnings growth this year and next year, respectively.
That’s honestly pretty solid, but even more so for a company that trades at just 8.78 times forward earnings. That’s double-digit earnings growth and a single-digit price-earnings (P/E) ratio.
But if you want even more, investors can also throw in Bristol-Myers Squibb’s 2.99% dividend yield. BMY stock might not be sexy, but this “boring” company is definitely a winner.
Value Stocks to Buy: Wynn Resorts (WYNN)
WYNN stock should be on investors’ radar for one simple reason: the reopening trade. However, there’s much more to this story than what meets the eye.
Casino stocks were hammered in late Q1 2020 as the world shut down. Travel also ground to a halt and Las Vegas Boulevard became all but empty. No one knew what the future would look like, so they sold these stocks lower and lower.
However, just over a year later, the U.S. is ready to get back to action. Occupancy rates are jumping into comeback mode in Las Vegas, especially on the weekends. Macau revenue is on its way back as well. When we look at Wynn, analysts expect more than 100% revenue growth this year, followed by nearly 46% growth next year.
Unfortunately, consensus expectations don’t predict Wynn returning to full-year profitability until next year. Assuming we do get the rebound everyone is hoping for, though, Wynn and other casinos are going to have a big tailwind to work with. On top of that, this pick of the value stocks recently announced new plans for its online gaming and sports betting unit.
Like Alibaba, Farfetch may be a growth stock in most investors’ minds. In fact, it is a growth stock. However, with FTCH stock’s recent decline of 47% from its February high, this name has landed squarely on my list of value stocks.
Farfetch is an online marketplace for luxury goods. It’s no surprise that, as these products have grown in popularity, so has Farfetch. Recently, the company also announced a partnership with Alibaba, allowing it to tap into the Chinese market with the country’s largest retailer.
That should pay dividends down the road.
Until then, though, let’s look at the estimates. Analysts expect the company to grow revenue by 33% this year, 29.5% next year and more than 30% in 2023. For that, investors are paying just 6.18 times forward sales. I don’t find that price-sales ratio (P/S) to be expensive at all, particularly given the fact that Farfetch has been underestimated for awhile now.
For this kind of valuation and growth, FTCH stock seems to be a bargain after its recent decline. A 50% rebound here doesn’t seem out of the question.
Value Stocks to Buy: Dropbox (DBX)
Dropbox is an interesting candidate for this list of value stocks, due to its size and growth rate. With its $10.5 billion market capitalization, it’s far from a large-cap tech giant. However, its growth rate is not high enough to warrant a high valuation.
Basically, DBX stock is in that sort of strange middle ground where it’s a low-value, steady-but-slow grower with a mid-cap market capitalization.
For instance, consensus expectations call for 11% revenue growth this year and 9% next year. However, earnings estimates look better. Expectations call for a five-year growth rate of almost 17%.
For its solid growth, investors are paying just 4.82 times forward sales and 19.46 times forward earnings. But that’s not all — there’s even more value under the hood.
Dropbox has more than $1 billion on its balance sheet. Last year, the company generated $2 billion in annual recurring revenue, while free cash flow topped $500 million. Those are some impressive numbers. So, at this valuation, DBX stock is either going higher or could be a bolt-on acquisition.
Drop the “Drop” from the company above and you’re simply left with Box. This company has a lot of similar make-ups to Dropbox. However, there are obvious differences, too.
First off, with a market cap of just $3.8 billion, it’s notably smaller than Dropbox. With a current forward P/E ratio of about 28.85, it’s also more expensive on an earnings basis. However, trading at 4.46 times forward sales makes it cheaper based on revenue. Plus, some of its financials are worth a look.
As of Q4 2021, the company has almost $600 million in cash and equivalents (Page 38), while last year it generated free cash flow of $180 million. Analysts expect just 9.6% revenue growth this year, but an acceleration up to 10.1% next year and another acceleration of 11.7% in the following year.
Box is also profitable and forecast to earn 80 cents a share this year, before generating more than $1 per share in profit in 2022.
Is BOX stock the most exciting stock in the world? No, not necessarily. But this pick of the value stocks does have decent growth, solid fundamentals and a reasonable valuation.
Value Stocks to Buy: Micron (MU)
Micron can be a tricky stock because it can easily slip into the “value trap” category. What do I mean by this? Well, many investors will often look at this name’s P/E ratio, see that it’s low and buy MU stock as a result. According to Yahoo Finance!, Micron trades at just 7.89 times forward earnings.
The thought becomes this: “If this even gets a valuation that’s 50% of the S&P 500, it will more than double in price.” While nice in theory, that’s not really how it works. At least not with Micron. We can’t just assume the Street we will re-rate a stock.
However, this company should be on investors’ radar as the world continues to slog through its massive chip shortage. In late March, the company raised its outlook as a result of the shortage, something that doesn’t have a short-term solution at hand. Trade wars, supply-chain disruptions and difficult-to-predict demand during Covid-19 have caused many issues in this regard.
But companies like Micron should do just fine. Consensus estimates call for nearly 26% revenue growth this year and an acceleration to nearly 32% growth next year. Further, expectations call for more than 90% earnings growth for both this year and next year. Maybe that won’t pay huge dividends for Micron, as Wall Street lets its valuation sink and stock price stagnate. However, if MU stock does react to that growth, this one of the value stocks could have plenty of upside.
On the date of publication, Bret Kenwell held a long position in FTCH. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.