Value stocks are securities that trade at a discount relative to their fundamentals, whether that be earnings, sales or dividend payouts. Many investors seek out value stocks believing they can get shares on the cheap and book profits when they inevitably rise.
However, just because a company’s share price is depressed, it doesn’t mean the stock is worth buying. And stocks aren’t guaranteed to rise solely because they’re trading lower than they should based on their fundamentals. Many stock prices are lower for a reason, and shares that have been falling backwards might have further to go before hitting a bottom.
As is always the case, investors should perform their due diligence on any stock they are thinking of purchasing. With that being said, here is a review of five value stocks. Investors should consider buying three of these, but skipping the other two:
- Tesla (NASDAQ:TSLA)
- Berkshire Hathaway (NYSE:BRK.B)
- Bank of America (NYSE:BAC)
- Sundial Growers (NASDAQ:SNDL)
- Factset Research Systems (NYSE:FDS)
Value Stocks: Tesla (TSLA)
Tesla may be the world’s leading electric vehicle maker, but its shares appear to be undervalued right now. They currently trade for slightly more than $650 apiece. So far this year, TSLA stock has dropped nearly 9% and is down 27% from its 52-week high of $900.40.
Since reaching that high in late January, the company’s share price has been pushed down by a litany of issues. Tesla has seen highly publicized crashes, a big recall in China and short positions in its stock by well-known investors such as Michael Burry.
Elon Musk and other senior executives at Tesla are trying to keep the focus on new products and services the company offers. But even here, Tesla’s plans appear to be backfiring.
For example, the Palo Alto, California-based company recently unveiled a new subscription option for its full self-driving package. While the subscription is $199 per month, some Tesla drivers may need to pay an additional fee of $1,500 per vehicle to use the feature. The extra cost drew criticism from vehicle owners and TSLA stock fell on the news.
It’s unclear what it will take to right the ship at Tesla, but its share price looks attractive at current levels.
Berkshire Hathaway (BRK.B)
The holding company controlled by legendary investors Warren Buffett and Charlie Munger is one of the most popular value stocks in the world. Berkshire Hathaway is highly diversified, owning a number of businesses that range from Fruit of the Loom undergarments to Dairy Queen and Geico insurance.
For most of its existence, BRK.B stock has outperformed the major U.S. stock indices. So far in 2021, that trend has continued. Year-to-date, Berkshire Hathaway’s share price is up 21% to $280 compared to a 15.5% gain for the S&P 500 Index.
Buffett and Munger, now both in their 90s, are criticized for their old fashioned “buy and hold” investing style. However, they have provided exceptional value to investors over the past 25 years with returns of more than 1,100%.
Value Stocks: Bank of America (BAC)
Speaking of Warren Buffett, one of his favorite stocks and biggest holdings is Bank of America. Looking at the performance of BAC stock over the past year, it is easy to see why.
In the past 12 months, the share price of America’s second-largest lender has risen 62% to its current level of $38. That run up includes a 27% gain so far in 2021. Bank of America is benefitting as businesses reopen, consumer spending accelerates and corporate America starts to reinvest again.
If there’s one issue holding back Bank of America right now, it is the current low-rate environment. The bank’s revenue has been impacted as interest rates have remained at historic lows. Bank of America reported that its second quarter revenue declined 4% from a year earlier to $21.6 billion. The drop was attributed to a decrease in net interest income caused by low rates.
However, Bank of America is not alone in its struggle against low interest rates. Additionally, those rates will eventually move higher. With BAC stock down nearly 2% in the past month, investors should buy the dip.
Sundial Growers (SNDL)
Now for a stock to sell. Woefully depressed and one of the worst-performing Canadian cannabis companies, Sundial Growers is little more than a discarded meme stock at this point.
Currently trading for just 86 cents, SNDL stock has been sliding backwards since a mob of Reddit traders briefly pushed the share price up to $3.96 in February. After it reached its high, they quickly abandoned SNDL stock and sent the share price spiraling downward. Investors who hung on to their shares were left with a small, regional cannabis company with poor sales and few prospects.
The hope now is that Sundial Growers will be acquired by a larger cannabis company as a wave of consolidation sweeps through the sector. But so far, no suitors have come forward.
Some shareholders are betting the meme stock crowd will return and again push SNDL stock up to unsustainable heights — if even for a brief moment — so they can get out with some profits. However, there’s no guarantee that will happen.
Value Stocks: Factset Research Systems (FDS)
Connecticut-based Factset Research Systems isn’t a bad company by any means. However, the financial data company’s stock has been a dud this year. FDS stock is up just 3% since the first trading day in January, and the majority of its gains have come since June.
For most of the past seven months, FDS stock has barely moved up or down. But the company has gotten some traction since releasing positive fiscal-third-quarter results.
Factset Research saw record quarterly revenue of nearly $400 million, a 6.8% year-over-year increase. The company said the increase was the result of higher sales of its analytics, content and technology solutions. Factset’s diluted earnings per share (EPS) fell to $2.62 in the latest quarter, a 0.4% drop compared to $2.63 in Q3 2020.
The earnings were okay and FDS stock responded positively to their release. Now, the question is: what’s next? There’s no big catalyst that can move Factset’s stock higher over the medium-term. There are too many other growth stocks rising right now for investors to linger on FDS stock. Therefore, potential buyers should consider other value stocks instead.
On the date of publication, Joel Baglole held a long position in AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.