- It’s a good time to buy value stocks on weakness.
- General Motors (GM): Should be lifted by strong demand for its electric vehicles and its autonomous vehicles.
- General Electric (GE): Reported fairly strong Q1 results, and GE stock should get a big lift from the travel boom.
- Deere (DE): Should continue to benefit from high food prices.
- Cheniere (LNG): Investors are underestimating the energy company’s outlook as Europe looks for new sources of natural gas.
In an environment in which growth stocks and value stocks aren’t doing particularly well, picking names with low valuations and high profits makes sense. That’s because even investors who are skeptical about the market’s outlook should see the attractiveness of such stocks sooner or later.
Meanwhile, there are multiple signs that, over the longer term, those who buy high-quality value stocks on weakness now are going to make a great deal of money. Indeed, with sentiment towards the market terrible and the macro situation poised to improve, it looks like, if the market hasn’t bottomed, it will do so within the next several weeks.
Among the macro developments likely to reassure investors are the (likely correct) growing consensus that inflation has peaked. The latter situation, in turn, will probably make the Federal Reserve more dovish than many expect, and many anticipate that the Russia-Ukraine war will end sometime this month.
Also boding well for stocks, both Tesla’s (NASDAQ:TSLA) CEO Elon Musk and Warren Buffett’s Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) have recently decided to make huge investments. If they thought stocks were still far from bottoming, they probably would have waited for valuations to drop further before they made their moves.
Let’s dig into these four very attractive value stocks to buy on weakness:
General Motors (GM)
Despite inflation and supply chain pressures, General Motors’ (NYSE:GM) first-quarter earnings per share (EPS), excluding certain items, came in at a robust $2.09. versus analysts’ average estimate of just $1.67. The midpoint of GM’s 2022 adjusted EPS guidance is $7, well above analysts’ mean estimates.
With GM’s EV sales likely to surge next year, GM stock is likely to start pricing in that positive catalyst within a few months. Moreover, Wedbush analyst Dan Ives is upbeat on the company’s future in the EV sector.
GM CEO Mary Barra recently indicated that the company plans to deploy a robotaxi service early next year, a development that should also be extremely positive for the automaker and its shares.
Even with all of these positive catalysts, the forward price-earnings (P/E) ratio of GM stock is now a truly paltry 5.6.
General Electric (GE)
Specifically, with travel booming and likely to stay hot for some time, airlines are like to order many more planes and service their planes’ engines much more often than they have since the pandemic began. Those trends should tremendously boost GE’s Aviation unit, whose profit came in at $908 million in Q1. Additionally, the unit’s orders soared 31% year-over-year.
And because electric-vehicle sales are soaring while many countries are replacing coal plants with natural gas, the medium-term and long-term outlook of GE’s Power business is bright. Already last quarter, the unit, which GE stock bears had left for dead, generated a $63 million profit, and a 14% YOY increase in its orders.
GE stock sank because CEO Larry Culp said that the company is “trending toward the low end of (its 2022 ERPS guidance) range” due to “inflation and other pressures.” But inflation looks to have peaked, while the “other pressures” cited by Culp, including the war in Ukraine and supply chain issues, should improve in the second half of the year.
GE’s 2022 EPS guidance range is $2.80-$3.50. Assuming its EPS comes in at $3, GE stock is now trading at a forward P/E ratio of slightly below 25. Given the company’s multiple, strong, positive catalysts, that’s a cheap price to pay for the shares.
Deere (NYSE:DE) stock is up 10% so far this year, although it has fallen 10% in the last month. Bank of America (NYSE:BAC) recently stated that the company is the “market leader in precision ag at a time of insatiable farmer demand for new technology.” Indeed, with food prices quite elevated and likely to stay high due to the damage from the war in Ukraine, many farmers will likely continue to look to buy Deere’s products to boost their crop yields.
As Barclays stated in March: “High grain prices bode well for farm incomes, and elevated farm incomes are typically reinvested back into the farm, including machinery and grain storage,”
On Feb. 18, Deere reported “beat-and-raise” Q1 results. It increased its FY22 net income outlook to “$6.7B-$7.1B, up from its prior forecast of $6.5B-$7B.”
After its recent pullback, DE stock is trading at an affordable forward P/E ratio of 16.6.
With Europe looking to stop importing Russian gas, Cheniere Energy (NYSE:LNG), which exports American natural gas, should grow rapidly in the coming quarters and years. Some pundits have worried that the Biden administration is opposed to allowing U.S. natural gas exports to surge. But the Department of Energy in March “authorized additional liquefied natural gas exports from Cheniere Energy’s… Sabine Pass, La., and Corpus Christi, Texas, terminals.”
Cheniere will be able to quickly take advantage of the permit as its “facilities already are making more gas than is covered by previous export permits.”
What’s more, from Cheniere’s perspective, U.S. natural gas prices are in a “sweet spot” — high enough to convince U.S. producers to step up their output, but still much lower than European prices.
LNG stock is trading at a very low forward P/E ratio of just 10.