7 Value Stocks that May Benefit from a Huge Capital Rotation in 2022


value stocks - 7 Value Stocks that May Benefit from a Huge Capital Rotation in 2022

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Finding value in the market today can be more difficult to find than in a long time. Investors seeking top-notch value stocks certainly have their work cut out for them.

Valuations remain high, despite the recent selloff we’ve seen among hyper-growth stocks. Commodity prices are elevated, and it’s unclear if this current demand picture will remain the same moving forward. Yes, supply issues are likely to remain for some time. However, knowing just how this capital rotation into value stocks and out of growth stocks will proceed in the coming quarters is difficult to parse out.

Now, it’s clear that there’s a capital rotation underway. Investors are moving away from growth and into value. Higher interest rates, and the potential for four or more interest rate hikes this year will do that. Most value stocks benefit from having a higher proportion of their earnings front-loaded rather than back-loaded. For investors looking at companies with their future earnings many years away, rising rates can be very detrimental to these stocks’ underlying valuations.

Accordingly, investors may want to look at value stocks with the best potential to succeed in the near-term. This list of top value stocks are seven of my top picks for investors seeking defensive near-term returns with meaningful medium — to long-term upside.

Let’s dive into a few value stocks investors may want to keep on their radar right now:

  • Procter and Gamble (NYSE:PG)
  • General Motors (NYSE:GM)
  • Kulicke and Soffa Industries (NASDAQ:KLIC)
  • FedEx (NYSE:FDX)
  • Synchrony Financial (NYSE:SYF)
  • Berkshire Hathaway (NYSE:BRK-A,NYSE:BRK-B)

Top Value Stocks: Procter & Gamble (PG)

Procter & Gamble Union Distribution Center. P&G is an American Multinational Consumer Goods Company
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A true global conglomerate, Proctor & Gamble serves a wide range of customers all around the world. This company focuses on supplying a broad portfolio of everyday products. As far as consumer essentials plays go, Proctor & Gamble is among the most diversified and defensive of the group.

Interestingly, PG stock is up approximately 25% over the past year. Investors looking for defensive, stable, cash flow-earning companies are unsurprisingly gravitating toward the Proctor & Gamble’s of the world. This company has been outperforming on its own. However, rumors that PG may acquire Tula skincare have some investors excited about the growth potential with this company. This potential diversification into the superfoods-based skincare sector adds yet another layer of growth potential to this company. This would also be Proctor & Gamble’s third acquisition over the past two months.

Known for its integrated approach to marketing and selling its core consumer staples brands, Proctor & Gamble provides a defensive option for investors looking to rotate out of growth and into something a lot safer.

General Motors Company (GM)

Image of General Motors (GM) logo on corporate building with clear sky in the background.
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Recently, this automobile giant is gaining a lot of attention for its shift toward electric vehicles. General Motors, as well as its peers, have committed to making a complete shift to EVs in a very short time frame. Such a move is expensive, and will require a lot of up front capital. However, investors like the growth prospects of the auto sector perhaps better than ever before.

GM is the company behind iconic brands such as GMC, Cadillac and Chevrolet. Investors hope that this iconic American brand can harness the power of these brands to grow its EV market share. Over the past year, shares of GM stock are relatively flat. That said, given the appreciation its competitors have seen, there’s a lot to like about the untapped potential of this company.

Among the recent catalysts that investors are talking about is the company’s recently-announced app, CarBravo, for used car purchases. This market is red-hot, and GM appears to be looking to further integrate its offering, a move that’s likely to be beneficial to shareholders over the long-run.

Overall, GM is about as iconic of a stable of brands as investors could want — at these levels, it’s likely to remain attractive for those looking to rotate into value.

Top Value Stocks: Kulicke and Soffa Industries (KLIC)

a close up image of a semiconductor
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A lesser-known company, KLIC is a leading electronic assembly solutions and semiconductor packaging provider. In simple terms, the firm supports the global consumer, automotive, industrial, and communications segment.

The company has expanded its product portfolio through acquisitions and development. To name a few, its new products include wedge bonding and advanced packaging.

Over the past year, KLIC stock has soared approximately 44%. Compared to the market, KLIC stock has been a winner. Much of this has to do with the company’s recent earnings results, which were stellar. Top-line growth of 173% and bottom-line growth of 538% were the highlights. For a “stable” packaging provider, these are some blowout numbers.

This company is innovating into new market segments, launching web-based software solutions, and other automation in its factories. As the company continues to grow, KLIC stock provides investors not only with a defensive investment thesis, but a growth angle as well. Accordingly, this is a stock to keep an eye on this year.

FedEx Corporation (FDX)

A FedEx (FDX) employee loads a FedEx Express truck in Manhattan.
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FedEx is a renowned e-commerce, transportation and business service provider. It operates in various segments. To name a few, its verticals include FedEx Ground, FedEx Express, FedEx Services, and FedEx Freight.

Currently, the company’s supply chain includes over 166,000 direct suppliers in the U.S. They work hand-in-hand to deliver more than 10 million shipments per day globally.

As far as its financials are concerned, Fedex certainly reported some decent quarterly results, to say the least. The company brought in $23.5 billion in revenue this past quarter. This represents a 14% jump from its previous years’ revenue of $20.6 billion. In addition, the firm also posted an operating income worth $1.6 billion. This is a 9% year-over-year jump from the previous total of $1.47 billion. Earnings per share also blew investors away, coming in at $4.83, vs. consensus estimates of $4.28.

As investors look for high-quality blue chip defensive stocks to rotate into, my guess is companies like FedEx will be top of mind.

Top Value Stocks: Synchrony Financial (SYF)

Synchrony Financial logo displayed on a phone
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Synchrony Financial, a consumer financial services firm, had a memorable year in 2021. This company’s stock price surged approximately 24%, as investors looked to rotate into niche financial growth stocks.

The thing is, Synchrony’s business model appears to be more stable than many may have initially thought. This company provides a host of consumer options tied to financing consumer items such as furnishings or auto purchases. As the economy continues to heat up, it’s expected companies like Synchrony could pick up a greater market share of purchases, as investors opt for easy financing for specific purchases.

Now, this stock has dipped recently, and is one that may be higher-risk, higher-upside bet for investors. That said, for those who believe the economy may require less-conventional solutions to continue to move forward, SYF stock is one to consider as a quasi-defensive play right now.

Berkshire Hathaway (BRK-A,BRK-B)

A Berkshire Hathaway (BRK.A, BRK.B) sign sits out front of an office in Lafayette, Indiana.
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Warren Buffett’s Berkshire Hathway really doesn’t need much of an introduction. This global conglomerate has become a fixture for investors looking to own a piece of America. Berkshire Hathaway’s businesses span from railroads to power, financials, and a variety of consumer goods companies. On the whole, this company’s portfolio is about as defensive as it comes.

That’s because Berkshire Hathaway’s earning power and books value tend to continue to increase over time. This company has impressively improved its annualized returns over the long-term, often choosing to repurchase its own shares rather than adding to its existing holdings.

During its Q3 earnings result, it became a net seller of stocks for the 4th straight quarter. In addition, the market player acquired Floor and Decor and Royalty Pharma for the first time in the December quarter. These moves suggest a more cautious approach to the market, something defensive investors ought to like.

Top Value Stocks: KKR (KKR)

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Finally, we have private equity player KKR. A company many may not consider to be a defensive holding, KKR has existed for decades because this company is always on the search for value. In some ways, an investment in KKR is an investment in the “cigarette butts” Warren Buffett and Benjamin Graham have talked about for decades.

Now, it should be noted that the leveraged buyout business is on that involves, well, leverage. Accordingly, there’s perhaps a higher risk profile with this acquisition-focused firm than with some of the other companies on this list. However, it should also be noted that when the market is terrible, KKR is a company to look at. That’s because the best time to go shopping for beaten up companies is during times of distress.

Thus, defensive investors who believe trouble is-a-brewin’ may want to consider KKR right now. The company’s fundamentals are strong, as is its cash flow. Over time, I think this company has a lot to offer investors looking for value stocks in an overvalued market.

On the date of publication, Chris MacDonald 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.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective. 

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