Contrary to arguably most people’s gut instincts, the equities market — particularly growth-related investments — enjoyed a robust rally in 2021, with the S&P 500 index returning nearly 28%. Thanks to unprecedented phenomena such as meme-trading, seemingly anything that enjoyed widespread popularity on social media jumped higher. Nevertheless, all good things must come to an end, boosting the case for value stocks to buy.
To be clear, one shouldn’t necessarily make wholesale adjustments on their portfolio based on a hunch or some expert’s projections. You ever notice that so many folks claim to have called the 2008 financial crash only after it happened? Or those that genuinely issued that prediction had called the last eight of two recessions? That’s because market predictions (to the up and downside) is difficult business.
And trust me — no one’s gonna sell you the secret sauce for a low, low price of only $29.99. If a system could predict the future, it won’t be for sale. And that brings me us to value stocks.
Unlike purely growth-focused names, value stocks tend to have proven or reliable businesses. In both slow, booming and sometimes down markets, value-oriented companies deliver substance to shareholders. However, because of their established track record, some risk is taken out of the equation. Obviously, the highest-returning equities almost always feature the highest risk, which is part of the reason why value fell off the radar.
Still, value stocks could make a comeback in the new year. For one thing, speculation appears to have gotten out of hand, with stock trading on margin remaining near record highs. With many uncertainties ahead of us, including shifting monetary policy and geopolitical tensions, many investors may choose to rotate out of risk-on names.
Second, the economy may not be as robust as many think it is. With more of America’s wealth concentrated in fewer hands, the investment market may not be able to holistically support growth companies tied to pre-revenue aspirational businesses as it did in the last two years. Thus, it may be time to consider these value stocks to buy.
- Synchrony Financial (NYSE:SYF)
- KKR & Co. (NYSE:KKR)
- Electronic Arts (NASDAQ:EA)
- International Paper (NYSE:IP)
- General Motors (NYSE:GM)
- Gold Fields (NYSE:GFI)
- Vale (NYSE:VALE)
It must be stated that if doom-and-gloom predictions for 2022 turn out to be accurate, value stocks might not protect you. In that case, all equity classes are due for a steep correction. Thus, as with any other venture, due diligence is non-negotiable.
Best Value Stocks to Buy: Synchrony Financial (SYF)
By all measures, Synchrony Financial — a consumer financial services company delivering customized financing programs — enjoyed a strong year in 2021. SYF stock returned nearly 36% for stakeholders, a sizable amount especially when you consider how choppy it was in its early years. However, in the past six months, SYF has dipped almost 2%, possibly presenting itself as one of the value stocks to buy.
Mainly, Synchrony features myriad consumer options for financing, ranging from automotive to home furnishings and improvement. It even offers solutions for electronics/appliances purchases and musical instruments (for childhood development). True, the Federal Reserve plans to raise rates in the new year, which will boost borrowing costs. However, the rate increases probably won’t be overly dramatic.
As well, the fear of higher borrowing costs could also incentivize borrowing. Better to do it now than to do it later at a higher monthly expense. Thus, it’s possible that SYF stock could see a near-term lift compared to other value stocks.
KKR & Co. (KKR)
Unless you’re gathering opinions from psychopaths, very few people like bullies. But in case you have to deal with them — and in situations where you can’t punch ‘em in the mouth like at work — your best option is to try to get them on your side. And if that doesn’t work, you might consider joining their side.
At this point in the game, no one wants to hear about private-equity firms — at least not if you’re part of the populist movement railing against the wealth gap. Also, if you’re looking to buy a house, the booming real-estate market is not going to endear you to private-equity firms. Allegations are pouring in that this segment is buying up homes, turning the U.S. into a fiefdom.
It’s not going to be a popular opinion for value stocks to buy. But acquiring shares of KKR & Co. could do you much good in the long run.
Through its various assets, KKR performed very well all things considered in 2020, with revenue up a hair from 2019’s tally. Furthermore, the company is consistently profitable, something growth-oriented names can’t say. Should the economy tank, you can probably bet on KKR stock scooping up the discounts.
Best Value Stocks to Buy: Electronic Arts (EA)
Back during the initial onslaught of the coronavirus pandemic, video game companies like Electronic Arts made plenty of sense. I mean, what else were you going to do during this unexpected downtime? And it really was downtime since government agencies imposed various mitigation measures and lockdowns of non-essential businesses.
But now that society has become acclimated to the new normal, the concept of retail revenge — people opening their wallets en masse to make up for lost experiences in 2020 — presents an unusual headwind for gaming-related value stocks. With greater emphasis on physical or social experiences, EA faces some risks.
It’s the same principle with an Adele song. I liked it the first few times but do we really need to hear it 24/7 for the next six months?
Though Electronic Arts is not the most confidence-inspiring of value stocks, it should still belong on your radar due to its lucrative sports franchises. Younger folks may not be attending the actual games that much, but they sure love participating in their virtualized counterparts.
International Paper (IP)
On the surface, International Paper might be deemed too boring and anachronistic to be among the value stocks worth consideration. Sure, it features a forward price-earnings (P/E) ratio of just under 10 times, which is certainly undervalued for the industry. However, the world has gone digital. Soon enough, people may forget how to write manually — just like we may eventually forget how to tell time on an analog clock.
Still, I wouldn’t have a pessimistic attitude toward IP stock. While the days of making money largely off writing pads may be on the decline, International Paper has shifted its business to reflect rising digitalization. For instance, the company is one of the leaders in packaging products. Considering that e-commerce sales are still incredibly robust despite falling from their pandemic-related peaks, IP will likely enjoy continued resilient demand.
While it’s not the most enjoyable dinner table conversation, IP also specializes in cellulose fibers or materials used in baby diapers, feminine care, adult incontinence and other personal hygiene products. So unless you envision a world where those things are not needed anymore, IP should belong on your prospective list of value stocks to buy.
Best Value Stocks to Buy: General Motors (GM)
Technically speaking, Gurufocus.com — through its proprietary mechanism to determine investment prospects — defines General Motors’ shares as significantly overvalued. However, on more standardized metrics such as PE ratios, GE currently trades at just under nine-times forward earnings. That’s solidly undervalued relative to the vehicles and parts industry.
No, we could play around with fancy arithmetic all day long but that’s probably not why you’re reading this. Instead, I view GM as fundamentally undervalued relative to its business potential. For instance, we’re seeing so many electric vehicles (EV) competitors enter the fray. But who honestly knows which ones are contenders and which ones are pretenders?
With GM, you have an established business which is steadily earning back Americans’ trust. As well, with the company’s initiative to electrify the iconic Hummer, consumers can have their automotive and environmental cake and eat it too.
Let’s also not forget that GM introduced the absolutely ridiculous mid-engine Corvette. I haven’t been this excited about an American car since — well, I’ve never been excited about an American car. Until now, that is.
Gold Fields (GFI)
At first glance, Gold Fields doesn’t seem like a viable idea for value stocks. For one thing, while GFI’s nine-times trailing-12-month earnings ratio seems undervalued, it’s only modestly so at best when stacked up against other publicly traded mining firms. More critically as the brand suggests, Gold Fields is a mining company specializing in the namesake asset.
Now, precious metals appeared to be a viable investment idea throughout 2021 because of extremely low borrowing costs. Naturally, this dynamic boosted inflation to multi-decade highs, which is cynically positive for valuable commodities. While the money supply can always fluctuate, the availability of extractable precious metal deposits is limited. However, with the Fed signaling a more hawkish monetary policy, GFI stock seems to be running up against a massive wall.
Admittedly, the mining company isn’t for everyone. But on the bright side, it’s possible that the underlying asset of GFI stock could rise on the fear trade. A cold war has been brewing with China, while Russia threatens a hot conflict in eastern Europe. And it’s not entirely clear where the global economy will head following the pandemic.
Best Value Stocks to Buy: Vale (VALE)
Depending on your risk-tolerance profile, you may find Vale either too dangerous as one of the value stocks to consider or quite compelling. On the one hand, VALE stock shed more than 16% in 2021, putting it right on the cusp of what many analysts consider bear market territory. But on the other hand, shares represent a discount in a premium-rich environment.
If you’re willing to play with speculation funds, Vale also has a fundamental reason for consideration. Based in Brazil, the company is one of the largest producers of iron ore and the largest producer of nickel in the world, per its website. Right there, this circumstance makes Vale incredibly relevant because, as Bloomberg pointed out, nickel “is a key component in lithium-ion batteries.”
If anything keeps Elon Musk awake at night, it’s the possibility of a nickel shortage, which would be detrimental to EVs. As well, nickel usage allows manufacturers to reduce dependency on cobalt, which is more expensive and features severe humanitarian concerns.
Still, the Wall Street Journal argued that the nickel shortage argument is overblown. While I’d perform due diligence on the subject, it seems more recent evidence supports the shortage side of the debate, which would cynically bolster VALE.
On the date of publication, Josh Enomoto 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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.