These Are the ONLY 3 Value Stocks to Consider in August 2023

Advertisement

  • Here are profitable value stocks trading at a discount to the market.
  • Qualcomm (QCOM): Buy this in anticipation of the smartphone market recovery in 2024.
  • First Citizens BancShares (FCNCA): The Silicon Valley Bank deal is immediately accretive to this undervalued bank’s earnings.
  • CONSOL Energy (CEIX): Strong thermal coal demand will support shareholder returns through buybacks.
Value Stocks - These Are the ONLY 3 Value Stocks to Consider in August 2023

Source: Gsign76 / Shutterstock

Compounding your wealth in the markets can be boiled down to buying stocks at a discount to market value. Then, your holdings appreciate as the price converges to the intrinsic value over time. Generally, purchasing value stocks is a safe and reliable way to grow wealth.

The markets are constantly availing value stocks to buy. In the short term, emotions rule over investors, creating opportunities. For instance, investors might sell a stock due to a disappointing quarter. Or they might chase the latest hype stock at the expense of solid low-growth stocks.

Despite the extended valuations in the current market, plenty of top-value stocks exist. While technology has outperformed year-to-date, cyclical sectors like financial and energy have lagged. Also, small caps have massively underperformed their large-cap peers and are hunting grounds for the best value stocks. Even in technology, some laggards haven’t enjoyed the artificial intelligence lift.

With yields rising, value stocks might have the upper hand for the rest of the year. Below, we look at some of the most promising value stocks to buy. They are solid companies trading at a low price-to-earnings ratio.

Qualcomm (QCOM)

Qualcomm (QCOM) logo on side of headquarters
Source: photobyphm / Shutterstock.com

In the computing industry, Qualcomm (NASDAQ:QCOM) is one of the most important semiconductor companies. It is a leading provider of wireless chip technology for 3G, 4G and 5G. In fact, due to its technology advantage, it counts major smartphone companies such as Apple (NASDAQ:AAPL) and Samsung Electronics (OTCMKTS:SSNLF) among its top customers.

Year-to-date (YTD), Qualcomm has underperformed semi-peers like Nvidia (NASDAQ:NVDA) and Marvell Technology (NASDAQ:MRVL). Considering this underperformance, it’s one of the promising value stocks to buy in August.

First, after two years of decline, the smartphone market might return to growth in 2024. According to the International Data Corporation (IDC), smartphone shipments declined 7.8% year-over-year in the second quarter. However, there is optimism that inventories will start normalizing in the third quarter. As excess inventories clear up, IDC expects the smartphone market to return to growth in 2024.

Secondly, the company is tapping into growth areas like IoT and automotive. While the Internet of Things (IoT) showed a decline in Q3 fiscal year 2023 results, automotive revenues grew 13% to $434 million. These two segments represented 22% of revenues in the quarter and will be meaningful contributors in the future.

Lastly, although the stock hasn’t risen on the AI wave, management outlined that the stock is a beneficiary. Chief Executive Officer (CEO) Cristiano Amon noted, “As AI use cases proliferate to the edge, on-device AI has the potential to drive an inflection point across all our products.”

Based on non-GAAP diluted EPS guidance for Q4, Qualcomm will earn at least $8.19 in FY2023. That equates to a forward P/E of 13, a bargain valuation for one of the best wireless technology companies.

First Citizens BancShares (FCNCA)

First Citizens Bank (FCNCA) logo displayed on smartphone in front of SVB logo in dark background behind phone
Source: shutterstock.com/rafapress

First Citizens BancShares (NASDAQ:FCNCA) was thrust into the limelight after they won the bid to purchase a chunk of collapsed Silicon Valley Bank (SVB) assets. In the deal announced in March, the bank acquired certain Silicon Valley Bank assets at a $16.5 billion discount.

This shrewd bargain is just one of the bank’s many deals over the years. The Holding family controls this Raleigh, NC-based bank. Under the leadership of Frank B. Holding Jr., it has grown into one of the top 15 banks in the United States.

It has delivered outstanding results through disciplined banking and strategic acquisitions of failed banks like SVB. Over the years, First Citizens has developed a competency in acquiring failed banks from the Federal Deposit Insurance Corporation (FDIC).

Notably, the company has made over 20 failed bank purchases over the last 15 years. These acquisitions cost-effectively expanded the franchise. Unsurprisingly, it has been the best-performing bank since 2008.

On the SVB announcement, the stock soared over 50%, highlighting the favorable terms of the deal. It acquired $110 billion of assets, including $72 billion in assets, $35 billion cash and $3 billion of other assets. These assets were funded by $94 billion of liabilities, including a 5-year $35 billion FDIC loan, $56 billion of deposits and $3 billion in other liabilities.

The difference of $16 billion is the discount received from the FDIC. The discount provides significant accretion to First Citizens’ common equity.

Analysts estimate it will earn at least $160 in FY2023. As of this writing, the bank trades at 8x forward estimates and remains among the value stocks to buy.

CONSOL Energy (CEIX)

Person holding the glowing world in their hands with icons with different types of energy. AI Recommended Energy Stocks in July
Source: PopTika / Shutterstock

One of the most undervalued market sectors is energy. Market participants have shunned thermal coal stocks due to environmental, social and governance (ESG) concerns. As a result, CONSOL Energy (NYSE:CEIX) trades at a rock-bottom valuation, making it one of the top-value stocks to buy.

Over the past decade, ESG has come to the forefront of investing and how investors allocate capital. Amid the energy transition, asset flows have increased towards renewable energy sources, such as solar and wind. Meanwhile, fossil fuels — particularly coal — have been starved of capital and flows.

Despite the investor flight, the fundamentals in thermal coal remain solid. Although developed economies are transitioning to cleaner energy sources, emerging markets are still burning coal. Emerging markets are growing and need a lot of energy to support their economic expansion.

According to the International Energy Agency, global coal demand will stay at record levels in 2023. In 2022, consumption rose by 3.3%, and demand will remain elevated due to higher demand from Asian economies.

Due to robust thermal coal demand, CONSOL will continue to thrive. In the second quarter, it sold 6.4 million tons, earning $521 million compared to 6.2 million tons and $518 million in the previous year.

Management also revealed that coal production for 2023 was nearly fully contracted. Additionally, it has 17.6 million tons contracted for 2024 and another 4.4 million tons through 2026.

The firm generates enormous free cash flow, realizing $180.8 million in the second quarter. In first-quarter earnings, management announced they would return 75% of free cash flow primarily through buybacks. Given its depressed valuation, the company can repurchase its entire market capitalization in three years.

On the date of publication, Charles Munyi did not hold (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.


Article printed from InvestorPlace Media, https://investorplace.com/2023/08/these-are-the-only-3-value-stocks-to-consider-in-august-2023/.

©2023 InvestorPlace Media, LLC