Thanks to the historical surge of “meme stocks” and an impressive rise in the major indices, it has become increasingly challenging these days to find reliable yet cheap value stocks in the market. With the S&P 500 near all-time highs and up significantly from 2020 lows, it may seem like there are no bargains left.
But value stocks are actually staging a comeback now and creating opportunities for value investors, due in part to the recovering U.S. economy. Therefore, today I’ll look at some of the best cheap value stocks out there and explain why you may want to consider adding them to your portfolio.
While most investors tend to associate the best value stocks with cheap valuations, value investors instead need to look closely at the underlying fundamentals relative to the company’s prospects. Value stocks have the potential to provide shareholders with long-term growth that exceeds the limits set by their current valuations. As a result, they are usually considered to be cheap relative to their earnings and long-term growth potential.
True, tech stocks like Amazon (NASDAQ:AMZN) and Tesla (NASDAQ:TSLA) have gained substantial media attention and outperformed other sectors in the past decade. Yet, value stocks have generated much greater returns over the long term. An analysis by Anchor Capital Advisors indicates that a dollar invested in value stocks in 1927 would have grown almost 18 times faster than a dollar invested in growth stocks.
Today’s market conditions have created inherent value in several quality equities. So, with that information, here are seven cheap value stocks that could deliver generous returns to investors in 2021 and beyond:
- CVS Health (NYSE:CVS)
- Freeport-McMoRan (NYSE:FCX)
- HP (NYSE:HPQ)
- Invesco S&P 500 Pure Value ETF (NYSEARCA:RPV)
- iShares Russell 1000 Value ETF (NYSEARCA:IWD)
- Sanofi (NASDAQ:SNY)
- Vanguard Dividend Appreciation ETF (NYSEARCA:VIG)
Cheap Value Stocks to Buy: CVS Health (CVS)
52-week range: $55.36 – $90.61
Dividend yield: 2.41%
Among the top 10 U.S. retailers by revenue, CVS Health is an integrated pharmacy health care company. The company combines “the largest pharmacy benefit manager, processing about 2 billion adjusted claims annually, and a sizable pharmacy operation, including nearly 10,000 retail pharmacy locations” primarily in the United States.
CVS Health released first-quarter results in early May. For Q1, total revenue increased to $69.1 billion, up 3.5% compared to the prior-year period. Net income surged more than 10% year-over-year (YOY) to $2.2 billion. Finally, adjusted earnings per share (EPS) was $2.04 — up 6.8% YOY — while cash flow stood at $2.9 billion. On the results, CEO Karen Lynch said the following:
“We delivered strong first quarter results and improved our outlook for the year […] Our unmatched assets and strength of our brand are driving results as we work toward improving care delivery and driving growth.”
Over the last 12 months, CVS has generated over $270 billion in revenue and $15 billion in cash flow from operations. With a market capitalization of around $109 billion in a mature industry, CVS stock offers a stable dividend, consistent cash generation and a reliable bundle of pharmacy and health insurance assets.
On top of that, this company also recently raised its adjusted earnings per share (EPS) guidance range to between $7.56 and $7.68, up from between $7.39 and $7.55. CVS stock currently hovers slightly above $83, trading 8% below its 52-week high. Despite gaining roughly 22% year-to-date (YTD), CVS stock still has a bargain valuation, making it a good candidate among the cheap value stocks. Its forward price-to-earnings (P/E) and price-to-sales (P/S) ratios are 10.82 and 0.39, respectively. Interested readers could buy the dips in the shares.
52-week range: $12.44 – $46.10
Dividend yield: 0.41%
Next up on this list of cheap value stocks, Freeport-McMoRan is one of the biggest copper producers in the world. The company’s segments include “refined copper products, copper in concentrate, gold, molybdenum, oil” and more.
Freeport-McMoRan reported Q1 results back in April. For the quarter, sales came in at $4.85 billion, up more than 73% YOY. Additionally, adjusted net income stood at $718 million, or 48 cents per diluted share. Lastly, FCX ended the first quarter with $4.58 billion in cash and equivalents. On the results, CEO Richard Adkerson remarked the following:
“We are well-positioned for long-term success as a leading producer of copper required for a growing global economy and accelerating demand from copper’s critical role in building infrastructure and the transition to clean energy.”
As Adkerson notes, the economic recovery over the past year has transformed copper into an even hotter asset class. For one, copper is used heavily in infrastructure projects like construction, transportation and electrical networks. Plus, electric vehicles (EV) use up to four times more copper than internal combustion engines. Additionally, renewable energy uses up substantially more copper than traditional fossil-fuel power generation.
So, as a favorable demand environment for copper is expected to persist over the next few years, FCX stock remains attractive for long-term investors. Higher copper prices will not only increase revenue; they imply higher profit margins. Freeport’s EBITDA stood at $4 billion in 2020. Wall Street analysts are now forecasting $10.3 billion for 2021.
FCX stock currently hovers around $36, up almost 38% YTD. Additionally, it has returned 173% in the past 12 months. True, the stock has recently come under short-term pressure. However, shares remain attractively priced given that copper prices are expected to head higher in the coming months. Today, this name’s forward P/E and P/S ratios stand at 12.45 and 2.34, respectively.
Cheap Value Stocks to Buy: HP (HPQ)
52-week range: $16.66 – $36.00
Dividend yield: 2.72%
Based in California, HP is a prominent provider of computers, printers and printer supplies. The company’s two operating business segments are its personal systems — which include desktops, notebooks and workstations — and its printing segment focusing on consumer hardware, supplies and commercial hardware.
Like other names on this list of cheap value stocks, HP released Q2 earnings in late May. Revenue grew 27% YOY to $15.9 billion. Additionally, net income surged about 61% YOY to $1.2 billion while adjusted diluted EPS rose to 98 cents, up from 53 cents in the prior-year period. Lastly, free cash flow stood at $1.3 billion in the second quarter. On the results, CEO Enrique Lores noted:
“We delivered another strong quarter, with double-digit top and bottom line growth […] HP technology is increasingly at the heart of hybrid work and we are benefitting from exceptional demand for our products and services.”
That said, this company remains second after Lenovo (OTCMKTS:LNVGF) in global unit sales, shipping 14.3 million PCs in the second quarter. This figure is 11% less than the number it shipped in the prior-year quarter, making it the only major brand to see a sales decline during the quarter. As such, the company seems to be feeling the negative impact of the chip shortage more than its peers.
Today, HPQ stock hovers around $28, up 14% YTD. Investors seem to have already priced in disappointing third-quarter results by pulling it down around 20% from its high of $36. Now, shares trade at a P/E multiple of 10.10 times. This pick of the cheap value stocks also has a forward P/S ratio of 0.54.
Invesco S&P 500 Pure Value ETF (RPV)
52-week range: $46.68 – $82.27
Dividend yield: 1.61%
Expense ratio: 0.35%
The next entry on this list of cheap value stock is the Invesco S&P 500 Pure Value ETF. This exchange-traded fund provides access to companies from the S&P 500 that exhibit value characteristics. Moreover, RPV tracks the returns of the S&P 500 Pure Value Index.
This fund has 119 holdings. Since its inception in March 2006, net assets have reached $2.53 billion. In terms of sectors represented, Financials has the highest weighting (43.37%) in the fund, followed by Consumer Discretionary (9.74%), Health Care (9.63%), Consumer Staples (8.16%) and Energy (8.01%).
Currently, around 19% of the fund is held in its top 10 holdings. Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B), Unum (NYSE:UNM), Prudential Financial (NYSE:PRU) and MetLife (NYSE:MET) are some of the leading names in the fund.
RPV stock is up around 22% YTD and has increased by over 51% in the past 12 months.
Cheap Value Stocks to Buy: iShares Russell 1000 Value ETF (IWD)
52-week range: $113.57 – $163.39
Dividend yield: 1.58%
Expense ratio: 0.19% per year
Our next choice on this list of cheap value stocks is the iShares Russell 1000 Value ETF. This fund seeks to track the investment results of an index composed of large- and mid-capitalization U.S. equities that exhibit value characteristics. Furthermore, this fund provides exposure to domestic stocks that are thought to be undervalued by the market relative to their peers.
As far as sector weightings are concerned, Financials lead the ETF with 20.49%, followed by Health Care (17.48%), Industrials (12.02%) and Information Technology (10.18%), among others. Additionally, the top 10 names make up around 17% of its net assets of $53.8 billion.
IWD stock began trading in May 2000 and currently has 841 holdings. Berkshire Hathaway, JPMorgan Chase (NYSE:JPM), Johnson & Johnson (NYSE:JNJ), UnitedHealth (NYSE:UNH) and Procter & Gamble (NYSE:PG) are among the leading companies in the roster.
YTD, this fund is up 16%. Moreover, it has risen around 35% in the past 12 months.
52 week range: $44.76 – $54.26
Dividend yield: 3.74%
Based in France, Sanofi is a health care group that develops and markets drugs with a concentration in oncology, immunology, cardiovascular disease, diabetes and vaccines.
Like other cheap value stocks on this list, this company announced Q1 results back in late April. For the period, net sales were 8.59 billion euros ($10.17 billion). Net income also came in at 1.57 billion euros ($1.85 billion) while EPS stood at 1.25 euros ($1.48). Finally, free cash flow of 1.93 billion euros ($2.28 billion) represented a YOY increase of roughly 24%. CEO Paul Hudson had the following to say on the company’s future:
“Dupixent® continues its outstanding performance with impressive growth in the U.S. and strong uptake in global markets, including China […] We initiated and completed enrollment of our Phase 2 study for our recombinant COVID-19 vaccine candidate in the first quarter and results are expected next month.”
Currently, Sanofi is enjoying the U.S. Food and Drug Administration’s (FDA) delays of competitors’ products, which as resulted in it getting ahead of the pack in the lucrative AD (atopic dermatitis) market. For example, delays in FDA approval for Incyte (NASDAQ:INCY) have provided an opportunity for Dupixent — SNY’s approved AD product — to extend its lead. Dupixent was responsible for more than $1.2 billion in revenue in Q1, representing a 45.6% quarterly gain YOY. In addition, Sanofi has also forged a partnership with GlaxoSmithKline (NYSE:GSK) to develop a Covid-19 vaccine.
Today, SNY stock trades slightly above $51, up around 6% YTD. Further, the shares offer a generous dividend yield. Plus, the company has been increasing its payout nicely for the past few years. Altogether, with a forward P/E ratio of 13.69 and forward P/S ratio of 2.97, this stock looks attractively valued.
Cheap Value Stocks to Buy: Vanguard Dividend Appreciation ETF (VIG)
52-week range: $121.30 – $159.59
Dividend yield: 1.51%
Expense ratio: 0.06% per year
Last up on this list, the Vanguard Dividend Appreciation ETF aims to track the performance of the Nasdaq US Dividend Achievers Select Index. Essentially, the fund provides a convenient way to track the performance of stocks with records of YOY dividend growth.
VIG stock started trading in April 2006. Today, its net assets stand around $71.9 billion. As far as sector weightings are concerned, Industrials lead the ETF with 22%, followed by Consumer Discretionary (16.7%), Health Care (15.10%) and Financials (14.10%).
Furthermore, VIG has 247 holdings. The top 10 names make up a little over 31% of net assets. Leading holdings include Microsoft (NASDAQ:MSFT), Johnson & Johnson and Walmart (NYSE:WMT), among others. The fund is up 12% YTD and has increased about 29% in the past 12 months.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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.