Value stocks are securities that that trade below intrinsic value. For any number of reasons, such value stocks may have fallen out of favor with investors and analysts. As such, the share price trades below what it should be worth based on the company’s fundamentals such as its earnings and book value. Most value stocks are older, more established companies where shares are trading at depressed or bargain prices. Value investors are people who take a long-term approach and buy a stock that is currently undervalued with the expectation that it will appreciate over time as the market eventually takes into account the company’s overall financial health as well as its future earnings potential.
In fact, many of the most successful investors of all time, such as Warren Buffett and Peter Lynch, identify themselves as value investors. They’re always on the hunt for stocks of good companies that are undervalued but should eventually recover and trade higher. Here are seven value stocks you can count on in this uncertain market.
|UPS||United Parcel Service||$183.65|
Value Stocks: Visa (V)
Credit card giant Visa’s (NYSE:V) stock is down 6% this year and 12% below its 52-week high of $235. The median price target on the stock is currently $248 a share, which is 20% higher than its current level. This presents a rare opportunity for value investors with a long time horizon to buy shares in a great American company at a deep discount to its intrinsic value. Over the past five years, V stock had gained 85%.
V stock had been as low as $178 a share in mid-Oct. before the company issued better-than-expected third-quarter financial results. The San Francisco-based company reported that it earned $1.93 a share on revenues of $7.79 billion in the July through September period. Wall Street had forecast earnings per share (EPS) of $1.86 on revenues of $7.55 billion. Visa also announced in Oct. that it’s raising its quarterly dividend by 20%, providing even more value to shareholders.
Value Stocks: United Parcel Service (UPS)
With the exception of, perhaps, the holidays, shipping parcels around the world isn’t a very exciting business. But as the world’s largest shipping and logistics company with annual revenues in 2021 of $85 billion, Atlanta, Georgia-based United Parcel Service (NYSE:UPS) is the kind of value stock that investors can buy on the cheap with expectations that it will deliver long-term gains. UPS stock is down 16% on the year and trading at $180 a share. But over the last five years, the share price has grown 60%, and it is up 157% over the past decade.
The median price target on UPS stock is currently $196, or nearly 10% higher than where the shares currently trade. For all of this year, UPS is forecasting revenue of about $102 billion and an adjusted operating margin of 13.7%. The company also intends to payout $5.20 billion in dividends to shareholders, giving it a strong yield of 3.37%. The company also plans to buy back at least $3 billion of its own stock. UPS stock currently trades at 14 times future earnings, which is below the average among stocks listed on the S&P 500 index, making UPS shares look comparatively cheap.
Value Stocks: Texas Instruments (TXN)
Dallas-based Texas Instruments (NASDAQ:TXN) is the kind of mature company that Wall Street has fallen out of love with and investors tend to ignore. However, discounting TXN stock would be a mistake. Today, Texas Instruments is a major manufacturer of semiconductors and integrated circuits. Unbeknownst to most people, the company is one of the top 10 semiconductor companies in the world.
TXN stock is down 10% this year and currently trading at $172 a share. However, over the last five years the shares have climbed 74% higher. Looking out 10 years, the stock has gained nearly 500%. If the share price appreciation isn’t enticing enough, consider also that Texas Instruments pays a healthy dividend that yields 2.76%. In addition, the stock looks quite undervalued with a price-earnings ratio of 18. Most tech stocks the size of Texas Instruments trade at 25 times future earnings, or more.
Central Securities (CET)
Central Securities (NYSEAMERICAN:CET) is a closed-end fund that offers great value to investors. In operation since 1929, Central Securities has been led since the 1970s by Wilmot Kidd III. While Kidd is also not a household name, he is regarded by many in professional investing circles as one of the greatest investors of all-time and the equal of Warren Buffett in terms of his returns.
When Kidd took over Central Securities in 1974, the fund had $34 million in assets under management. Today that figure is $1.3 billion. While unknown to most, Central Securities has outperformed Buffett’s Berkshire Hathaway (NYSE:BRK.A /BRK.B) over the past two decades. Central Securities has returned an annualized 14.5% with dividends reinvested to shareholders over the past 48 years, beating an 11.7% return for the S&P 500 index over the same timeframe.
Central Securities holds concentrated positions in a select number of stocks, some of which it has owned for 40 years. The company first bought Intel (NASDAQ:INTC) stock in 1986, and spent $700,000 to establish a position in private insurer Plymouth Rock back in 1982. The Plymouth Rock investment is worth more than $295 million today. Central Securities also has an extremely low expense ratio of less than 1% and has a history of paying outsized dividends. Down 23% this year, CET stock is a steal at its current price of $34 a share.
United Rentals (URI)
Stamford, Connecticut-based United Rentals (NYSE:URI) is the largest equipment rental company in the world. The company also boasts the biggest fleet of construction vehicles for rent on the planet. While URI stock has performed well, it gets scant attention from the media or public and continues to trade at levels that suggest it is undervalued. Year-to-date, United Rentals stock is up 6% and trading at $349 a share. That’s a significant outperformance compared to the S&P 500 that is down 18% in 2022. Over five years, the stock is up 128%.
However, a price-earnings ratio of 12 is low and indicates that URI stock is trading at a discount right now. The median price target on the stock is $387.50, implying 11% upside from here. This is the type of stock that, while not cool, is necessary and manages to perform well in any market conditions.
Union Pacific Corp. (UNP)
Union Pacific Corp. (NYSE:UNP) is a major part of the U.S. rail infrastructure. Along with Berkshire Hathaway’s (NYSE:BRK-A) Burlington Northern Santa Fe, Union Pacific forms a duopoly over long-haul freight rail service in the Western U.S., controlling much of the rail traffic west of the Mississippi River.
This year, UNP stock is down 14% at $212 per share, and 24% below its 52-week high of $278.94. But over the last five years, the stock has climbed 80% higher, and it has gained nearly 250% since November 2012. Despite the success, Union Pacific’s stock trades at a modest 18 times forward earnings. Shareholders benefit from a dividend yield of 2.45%. Analysts seem to agree that there is more value to be extracted from Union Pacific. The 30 professional analysts who cover the company have a consensus “buy” rating on UNP stock.
American Tower (AMT)
American Tower (NYSE:AMT) is a real estate investment trust (REIT). While most investors might yawn at the mere mention of a REIT, American Tower stands out as owner of the largest portfolio of wireless internet towers in the U.S. With its towers being adapted to handle fifth generation (5G) wireless, the company is rapidly expanding its infrastructure and network as demand soars for the most powerful internet possible.
AMT stock is down 23% since January and changing hands at just under $220 a share. However, the shares have gained 50% over five years and grown 195% over the last decade. The P/E ratio is a little high at 34, but analysts seem to feel that the share price has room to run. The median price target on the stock is $240 a share, which would be about 10% above where it is currently trading. AMT stock also pays a solid quarterly dividend that yields 2.67%. The company’s earnings are forecast to rise steadily as demand for 5G internet continues to swell.
Disclosure: On the date of publication, Joel Baglole held long positions in V and CET. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.