Value investing has gained momentum in 2022, and growth stocks have crashed, returning to more normal but still elevated prices after a strong 2021. There is no better time to invest now in value stocks for the long term.
Searching for stocks that have the potential to appreciate that won’t decline due to uncertainty from rising inflation, high energy prices and the risk of a recession is like finding the holy grail for investors.
Some analysts and investors believe that the stock market has discounted future volatility, as it is certain that the Federal Reserve will significantly raise the key interest rate by the end of 2022. Inflation is here and is at historic highs in the U.S. market. Oil prices remain resilient as the war in Ukraine continues.
Value stocks are a better choice than growth stocks. That’s because their intrinsic value is higher than their stock price. This catalyst will drive demand for high-quality stocks in a highly volatile stock market.
|GOGL||Golden Ocean Group||$12.45|
|EGLE||Eagle Bulk Shipping||$57.38|
Golden Ocean Group (GOGL)
GOGL stock trades at a price-to-earnings ratio of 4. While its dividends have varied in recent quarters, the smallest dividend in the last year, 50 cents, implies a yield of 16%. It has a one-year analyst target of $159.14.
In 2021, revenue increased 97.91% to $1.2 billion, and net income soared 482.96% to $527.22 million.
Golden Ocean Group has generated significant positive free cash flow — about $115 million — in each of the past three years. That is a very bullish trend.
Compared to the rest of the industrials sector, GOGL stock trades mostly at a steep discount. The forward price-to-cash flow for the stock is 33% of the sector median. The trailing 12-months price-to-earnings growth is close to zero.
Eagle Bulk Shipping (EGLE)
The shares are up 26% in 2022 and trade at a P/E ratio of 4.2 and recently began issuing dividends for the first time since 2008.
Despite the rally, the one-year target of $78.10 signals an upside potential of 36%. The company reported a sales growth of 116.09% in 2021 and impressive net income growth of 627.32% to $184.9 million.
The free cash flow growth in 2021 was very strong, coming in at $91.3 million. Compared to the industrials sector, EGLE stock seems relatively undervalued. The forward price-to-earnings of 3.6 is 78% lower than the sector median, and the forward price-to-book of 1.1 is 55% lower than the sector median.
Ecopetrol (NYSE:EC) is an energy company that performs exploration and production of natural gas and crude oil.
The shares have gains of 12% year to date. Revenue declines 28.84% in 2020, but rose 58.16% in 2021, and net income surged 888.98% in 2021. The company is a positive free cash flow generation machine with a growth of 498.49% in 2021.
EC stock trades at a P/E ratio of 6.7 and has paid out dividends most years. The 1-year target estimate of $20.14 signals an upside potential of 40%.
The sustained high prices for oil and natural gas in 2022 continue to build a very bullish thesis for Ecopetrol. The trailing 12-months PEG of 0.02 indicates a deeply undervalued stock.
On the date of publication, Stavros Georgiadis, CFA 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.