Wall Street has taken investors on a historically wild ride for almost three years. Since the market crashed as a result of the Coronavirus in the first quarter of 2020, stocks have been nothing short of polarizing. Since the market crash, the S&P 500 reached a record high of 4,818.62 points and now appears to be getting closer to a bottom. Year-to-date, in fact, the index which tracks the market’s biggest companies has dropped about 963 points. The decline is directly correlated to the growing threat of a recession, inflation, geopolitical tensions in Europe, and many other macroeconomic factors. As a result, today’s unique market conditions have created inherent value in several quality equities. Despite a frothy marketplace, there’s still plenty of room for today’s value investors to go shopping. Here’s a quick look at some of the best value stocks and why investors may want to consider adding them to their own portfolios.
What Are Value Stocks?
The concept of undervalued stocks will change from investor to investor. If, for nothing else, the metrics used to value equities themselves are weighted differently by the entire investing community. While some investors emphasize price-to-earnings ratios, others choose to look at the market cap, total addressable market, and anything else that may be used to help value a company more precisely.
When all is said and done, there are too many variables and too many metrics by which a company may be objectively valued. Therefore, the definition of a value stock will largely depend on who you ask.
Regardless of who you ask, however, most investors will relate the best value stocks to cheap valuations. As their names suggest, value stocks are widely considered to be cheap, relative to their earnings and long-term growth potential. In addition to their relative affordability, value stocks typically share some or all of the following characteristics:
More often than not, value stocks are established, mature businesses
Most value stocks will boast steady growth rates, but not fast enough to be confused with growth stocks
Value stocks have become synonymous with stable revenues and earnings reports
In other words, value stocks are companies that have demonstrated they can provide shareholders with long-term growth that exceeds the limits set by their current valuations.
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10 Best Value Stocks To Buy In December 2022
QUALCOMM Incorporated (NASDAQ: QCOM)
Trex Company, Inc. (NYSE: TREX)
Target Corporation (NYSE: TGT)
Redfin Corporation (NASDAQ: RDFN)
The Walt Disney Company (NYSE: DIS)
Alphabet Inc. (NASDAQ: GOOGL)
Ford Motor Company (NYSE: F)
FedEx Corporation (NYSE: FDX)
Zoom Video Communications, Inc. (NASDAQ: ZM)
PayPal Holdings, Inc. (NASDAQ: PYPL)
Regardless of how you define value stocks, Qualcomm may very well be one of the best value stocks to buy now. On the one hand, Qualcomm is trading well below its all-time and 52-week high. On the other hand, the company’s price-to-earnings growth ratio is 0.93x, which is below the semiconductors and semiconductor equipment industry median of 1.51x. It is growing easier and easier to argue Qualcomm is one of the best cheap stocks to buy today based on valuations alone. That said, Qualcomm doesn’t only belong with the top value stocks because it is inexpensive; it belongs with them because of the secular tailwinds lining up at its back.
Shares of Qualcomm have trended downwards for the better part of 2022. However, the trajectory of the tech stock doesn’t tell the whole story. If for nothing else, Qualcomm’s earnings suggest the stock should be moving higher. Both top and bottom lines have increased at an encouraging pace over the last year, but the company’s stock price refuses to reflect as much. Instead of reacting positively to recent earnings, most investors have sold their shares of Qualcomm off with the rest of the tech sector as inflation continues to grow out of hand.
Selling shares of Qualcomm in the wake of higher inflation may sound like a good idea, but investors who do so may be sorry they did in the future. At the very least, Qualcomm’s valuation leaves plenty of room for growth in a promising industry. More importantly, however, Qualcomm is expected to deliver great results over the course of 2022. Consensus estimates suggest that Qualcomm’s revenue may increase as much as 27% year-over-year by the end of 2022.
Even further out, Qualcomm is expected to be an integral player in the rollout of 5G. Already a leading producer of smartphone systems on chip and baseband modems, Qualcomm already has plans to expand its products related to the Internet of Things (IoT) and automotive chipsets. As the dependency of each grows more reliant on 5G, Qualcomm will increase its total addressable market.
To be clear, Qualcomm isn’t out of the woods yet. Short-term headwinds in the form of inflation and slower sales of smartphones will continue to make the stock more volatile, but the long-term thesis remains intact. Qualcomm will remain a major play in the growth of 5G and related smartphone chips. As a result, Qualcomm looks like one of the best value stocks to buy and hold for years, if not decades.
Trex Company, Inc.
One of the best value stocks few investors seem to be talking about is Trex. If for nothing else, Trex has found itself walking straight into a number of macroeconomic headwinds for the better part of a year. Shares are down about 70% from their all-time high in the wake of rising mortgage rates, escalating borrowing costs and inflationary pressure suppressing consumer spending.
Despite the decline, however, Trex isn’t one of the best value stocks from a traditional perspective. Most people, for that matter, will view the company’s price-to-earnings multiple of 19.95x as expensive. When the building products industry has a median price-to-earnings multiple of 15.61x, Trex is objectively expensive from a fundamental standpoint. However, there’s more than one way to be considered one of the best value stocks for 2022.
Fundamental analysis aside, shares of Trex are trading at a much more affordable valuation than they were at the beginning of this year. Now about one-third of its 52-week high, Trex has been a victim of the Federal Reserve’s decision to bring the entire housing market to a standstill. Interest rates have more than doubled year-to-date, effectively stalling activity in the housing market. As a result, anything associated with real estate has been hit hard, and Trex is no exception.
It is worth noting, however, that higher interest rates not only prevent buyers from shopping for a new home but they also stop sellers from placing their houses on the market. Nobody wants to trade their mortgages for today’s going rate. Consequently, more homeowners will be forced to stay in their current living situations, which means they may be inclined to upgrade their own houses.
As a manufacturer of wood-alternative composite decking, railing, and other outdoor items, Trex has been lumped in with the entire housing sector—for good reason. However, there’s a very real possibility that a slowdown in real estate activity will increase the need for Trex’s products. Homeowners have more equity than ever before, and there’s no reason to think some of it won’t be used to purchase Trex products.
“Although remodeling market gains are expected to cool significantly next year, homeowners still have record levels of home equity to support financing of renovations,” says Abbe Will, Associate Project Director of the Remodeling Futures Program. “Energy-efficiency retrofits incentivized by the Inflation Reduction Act of 2022, as well as disaster repairs and mitigation projects following Hurricane Ian will further support expansion of the home remodeling market to almost $450 billion in 2023.”
Trex will face headwinds as long as the threat of a recession looms, but there’s no denying the green nature and energy efficiency of the company’s products. As the world begins to prioritize ESG (environmental, social, and governance) practices, Trex will find itself at the top of the building materials industry at a time when existing homeowners are looking to upgrade, and new homes need the latest (and greatest) materials to sell for top dollar. That said, patient investors should be able to see Trex grow into its valuation. In the event current market trends continue, there’s no reason to think Trex isn’t one of the best value stocks to buy now.
Target Corporation, otherwise known simply as Target, is a nationwide retailer with approximately 1,897 stores sprawling from coast to coast. The company offers retail shoppers just about everything they could ever need, from groceries and personal care products to apparel and home decor. As a one-stop-shop for consumer needs, Target thrived over the course of the pandemic. The retailer’s sales soared as customers turned to Target in favor of many of its competitors.
Unfortunately, Target finds itself amongst the best value stocks to buy now because of a recent earnings report that left a lot to be desired. In the second quarter, Target reported an earnings per share of $2.16, down 48.2% from $4.17 in 2021. Compounding the disastrous earnings report were exuberant costs which the company grossly underestimated. Consequently, inflation appears to have weighed on earnings more than management expected. Investors were less than encouraged by the report and shares dropped nearly forty percent in a single night.
Today, shares of Target are trading with a price-to-earnings growth ratio of 0.94x, which means one of the best retailers in the country is trading at a fair value. Subsequently, shares may be purchased at a significant discount relative to where they were before the earnings report.
Target looks more like one of the best value stocks to buy now instead of something to run away from. If for nothing else, few companies on this planet are more capable of navigating a tricky marketplace better than Target. When the company was confronted with COVID-19, all it did was turn into one of the best performing stocks over the last couple of years. In the face of adversity, Target increased it shipping and e-commerce efforts to meet the growing demand of the COVID economy. In doing so, Target thrived and took market share from competitors who didn’t fare as well.
There’s no doubt about it; Target deserved to see its shares drop after the latest earnings report. However, the company was in a tough position, as a lot of business was pulled forward by the pandemic and inflation increased costs dramatically. All things considered, Target performed well at a time when a lot of companies can’t say the same. Therefore, Target gets the benefit of the doubt and looks more like one of the best value stocks on today’s market.
Redfin is a full-service real estate brokerage that is dedicated to disrupting the entire housing sector. In doing so, Redfin hopes to eventually turn into a “one-stop shop” for buyers and sellers. Perhaps even more notably, Redfin is making a name for itself by saving customers $8,400 on average. The company’s technology focused business model cuts unwanted costs and improves the buying and selling process for everyone involved.
Unfortunately, however, few publicly traded companies have faced more headwinds than Redfin. As an iBuyer platform, Redfin was simultaneously sold off in the tech downturn and along with real estate stocks that have guided down in the wake of increasing interest rates and less activity. All things considered, today’s macroeconomic environment has proven difficult for a tech company looking to revolutionize the real estate industry.
As a result, shares of Redfin are now trading below their IPO price and around the lowest level since becoming a public company. At about $4.38 a share, Redfin’s market cap is a far cry from where it was trading near $100 at the beginning of last year. Following the drop, Redfin’s 0.18x price-to-sales ratio is well below the industry median and objectively inexpensive.
To be clear, the decrease in market cap was warranted; shares of Redfin ran too hot, along with just about every other stock in the last year. However, today’s valuation makes Redfin look like one of the best cheap stocks to buy today. Down considerably from its all-time high, it’s hard not to view Redfin as one of today’s best value stocks.
Not only was Redfin able to increase its revenue by a compound annual growth rate of 50% between 2017 and 2021, but some analysts expect 2022 revenue to reach as high as $2.5 billion. In the event Redfin is able to increase its market share, it only needs to grab a small portion of the entire iBuying industry to make today’s share price look like a bargain. That’s not to say Redfin will be a home run over the next year or two, but rather that a patient investor with a 10-year time horizon will be very happy they bought shares at today’s prices.
The Walt Disney Company
To be clear, Disney is not a value play in the traditional sense. With a PEG ratio of 1.56x, shares of Disney appear fairly valued. Subsequently, Disney’s 58.23x PE ratio is amongst the highest in the entertainment industry. Every pure valuation metric suggests Disney isn’t one of today’s top value stocks. However, it is safe to say the best stocks deserve high valuations. Disney is fairly valued because it is one of the most beloved companies globally with perhaps the most valuable intellectual property ever seen.
Despite boasting a valuation that’s in line with the industry average, Disney looks like one of the best value stocks to buy now. In particular, investors should be excited with the number of subscribers Disney added to its new streaming service. More people signed up in the last quarter than analysts expected, which was great news considering Netflix actually saw subscribers drop. The combination of Disney+, Hulu, and ESPN+ generated $4.9 billion in the second quarter, increasing revenue by 23% year over year. However, it needs to be noted that Disney has more up its sleeves than its streaming service.
Disney parks worldwide are up and running again, and revenue was up 23% year over year to $19.2 billion. The latest selloff suggests people may have forgotten how profitable the company’s theme parks are. Revenue is returning at a brisk pace, making DIS look like one of the best value stocks on the market. Price increases haven’t scared anyone away and could make today’s stock valuation look like a great deal.
As one of the top value stocks on the market, Wall Street is grossly underestimating what is looking more and more like it’s going to be a busy travel season. Shanghai Disney is back up and running and the company has introduced a new cruise ship to its existing fleet (with more on the way). With the worst of the pandemic most likely behind us, people are more willing to spend money on traveling than anything else, and airline numbers are proof as much. If Disney can simply return to its pre-pandemic form, today’s share price will look like a bargain. Of the best cheap stocks to buy today, none may be more promising than The Happiest Place On Earth.
The current market correction has reigned in the share prices of most equities. While the loss of market cap in an inflationary economy was inevitable for most publicly traded companies, there are a select few which appear to have been penalized too much. Alphabet, in particular, appears to be oversold, making it one of today’s best value stocks to add to any portfolio. As the holding company of Google and several other flagship subsidiaries, Alphabet looks like one of the best stocks to buy for both defensive- and offensive-minded investors.
From a defensive perspective, Alphabet’s valuation is almost begging for the equity to be purchased. At 2.16x sales, Alphabet’s price-to-earnings growth ratio is right in line with the Interactive Media & Services industry median; that means investors can pay a fair value for an industry leader to partake in future earnings growth. The unique convergence of a low PEG ratio and a company with Alphabet’s potential suggests there’s a lot of room to the upside in a market where growth is hard to come by.
In addition to an attractive valuation, Alphabet’s cash position should help it weather the storm of an impending recession where interest rates are surging higher. While most unprofitable companies will struggle in the wake of higher borrowing costs, Alphabet can use its $125 billion in cash reserves to make strategic M&A (mergers and acquisitions) moves, buy back stock, or simply stay ahead of the competition. Whatever Alphabet decides to do with its cash, management has proven it always has the best interests of investors in mind.
For investors with a more growth-oriented mindset, Alphabet has all the tools necessary to grow and thrive in almost any economy. Thanks to the previously mentioned cash position, Alphabet can continue to invest in itself and improve its future performance. At the moment, revenue from Google’s ad services can fund just about any endeavor Alphabet wishes. According to the company’s latest quarterly report, revenue generated from Google’s ads reached $56.3 billion, up 11.6%.
Alphabet will be able to use the cash generated from Google ads to fund its most promising projects: Google Cloud, artificial intelligence (AI), self-driving cars, YouTube, and advertising (just to name a few). Yet, in spite of the company’s lofty ambitions and more than enough cash to see them through, Alphabet remains one of the most undervalued stocks in 2022.
To be perfectly clear, Alphabet isn’t without risk; no equity is. The latest quarterly report was mediocre at best, as several of the company’s most promising segments underperformed. At the very least, macroeconomic conditions will most likely cause shares of Alphabet to fluctuate over the rest of 2022, and most likely well into next year. The Fed’s fight against inflation will play havoc with even the best value stocks for the foreseeable future. However, few high-growth tech stocks will be able to navigate today’s economy like Alphabet. The tech-giant’s cash position and low valuation make it a strong defensive play at a volatile time. More importantly, however, investors don’t need to give up growth to play defense. Alphabet looks like as good of a bet as any to beat the market over the long run, making it one of the best value stocks to buy and hold for as long as the company’s thesis remains intact.
Ford Motor Company
While perhaps not as popular as other electric vehicle manufactures on Wall Street, Ford Motor Company has quietly become one of the best value stocks in a market that’s struggling to find its footing. As the stock market struggles to value many of today’s most prominent industry leaders, Ford appears to have fallen through the cracks. Despite being one of the leading auto manufacturers in the world, Ford is trading at an attractive valuation. With an impressive pipeline of electric vehicle sales, plenty of demand, and the manufacturing capabilities to keep up with orders, Ford is starting to look more and more like one of the best cheap stocks to buy today.
To be clear, Ford has had anything but a good year. Shares have been more than cut in half from their 52-week highs. Supply chain issues, parts shortages, and fears of a recession have all weighed heavily on the price of Ford’s stock. As a result, shares are trading with a price-to-earnings ratio of 4.35x; that’s well below some of the company’s closest competitors and the automobile industry’s median of 8.76x. From a fundamental perspective, Ford is objectively one of the best value stocks in the automotive industry, and perhaps even one of the best cheap stocks on Wall Street.
Ford’s current valuation is justified, as macroeconomic conditions and the lingering impact of the pandemic have held the company back from realizing its full potential. However, investors with a long-term horizon may have several reasons to be excited about the company’s future.
For starters, Ford’s last earnings report was encouraging enough for the company to announce the return of its pre-pandemic quarterly dividend. Now yielding somewhere in the neighborhood of 4.68%, Ford’s dividend is strong enough to help any portfolio hedge against inflation. The attractive dividend yield will help pay patient investors while Ford sorts out the current macroeconomic environment.
In addition to having enough cash to pay out loyal shareholders, Ford was comfortable enough with its progress to maintain its bullish full-year guidance. Plenty of demand for its products (both combustion and electric) should allow Ford to pass problematic cost increases brought about by inflation onto customers. Pricing power will help Ford improve margins on products that are only growing in demand.
Already a leader in the automobile industry, Ford is a safe bet to lead the world’s shift to electric vehicles. Ford has announced plans to invest approximately $30 billion in electric vehicles through 2025. The move is expected to serve as the foundation for the electrification of the auto industry on a global scale. In fact, the moves Ford makes today should allow it to electrify 40% to 50% of its global vehicle volume by 2030.
Ford’s transition to electric vehicles will greatly increase its total addressable market. According to a research report by Fortune Business Insights, “The global electric vehicle market size was valued at USD 246.70 billion in 2020. The market is forecast to rise from USD 287.36 billion in 2021 to USD 1,318.22 billion by 2028 at a CAGR of 24.3% during the forecast period 2021-2028.”
At its current valuation, Ford is already trading in the basement with low-price stocks. Despite its valuation, however, Ford has an incredibly bright future. If Ford is able to capture even a small portion of the total addressable market for electric vehicles, investors will most likely be happy they added shares to their portfolios today.
FedEx Corporation, or more commonly referred to simply as FedEx, is an American multinational conglomerate holding company focused on transportation, e-commerce and distribution services. Founded in 1971, FedEx now has more than 29,000 vehicles and 400 service centers which all focus on one thing: providing customers with express transportation solutions, small-package deliveries, freight services, cross-border e-commerce technology and e-commerce shipping solutions.
Despite resting comfortably at the forefront of its industry, FedEx looks like one of the best value stocks in today’s market. With a PEG ratio somewhere in the neighborhood of 1.22x, FedEx looks fairly valued. The entire air freight and logistics industry has a median PEG ratio of 1.29x, which suggests FedEx may be placed among today’s value stocks, especially when considerations are paid to forecasts and future guidance issued by the company.
Well off of its all-time high, FedEx looks as if it has fallen out of investors’ good graces. However, the selloff appears to be overdone. Sure, the pandemic may have pulled a lot of online business forward and more people are likely to return to retail stores as the economy opens back up, but FedEx is an industry leader with plenty of room for growth.
While FedEx may run into some inflationary headwinds in 2022, the growth and adoption of e-commerce will serve as a boon for revenue growth in the coming years. That, in addition to trading at a discount to competitors like the United Parcel Service, makes FedEx look like one of the best value stocks to buy in today’s market.
Zoom Video Communications, Inc.
The same company that became its own verb over the course of the pandemic by providing video communications technology at a time when nobody could gather is starting to join the rank and file of today’s best value stocks: Zoom Video Communications. As its name suggests, Zoom is a technology company which specializes in consolidating telecommunications, connecting people, and facilitating collaborative efforts for everyone, from individuals to enterprises. As such, Zoom became the poster child of the pandemic for scaling its operations to meet the demands of a global economy.
Zoom became synonymous with the work-from-home trend almost overnight, and shares of the company reflected as much. In less than a year, shares of Zoom increased six times in value, reaching an astronomical price-to-sales ratio somewhere in the neighborhood of 120x. At the height of the pandemic, shares topped out around $560. Today, however, is a much different story.
Hovering just above a 52-week low with a price-to-sales multiple around 5.3x, Zoom has fallen out of the good graces of investors. The decline first started as a correction to the extreme overvaluation of the company. Nonetheless, the decline continued in the wake of fewer pandemic fears, higher interest rates, and now fears of a recession. Much like every other tech stock on the Nasdaq, Zoom has been in a downward spiral for longer than investors would like to acknowledge.
The latest bottom was the result of a less than acceptable third-quarter earnings report. Most notably, shares dropped after the latest earnings report because of weaker-than-expected guidance and worsening margins. Arguably the worst part of the report, Zoom’s operating margins dropped from 39.1% in the third-quarter of last year to 34.6% in the latest earnings call. Consequently, net margins dropped from 32.2% to 29.3% over the same periods. Wall Street also wasn’t fond of the forward guidance provided by management. While Zoom expects revenue to increase 3.0% next quarter, analysts were expecting a guidance of 5.0%. Management also guided for an earnings per share of $0.77, which would represent a drop of about 40.0%. Wall Street was expected somewhere in the neighborhood of $0.88.
More than a year of compounding headwinds have weighed heavily on Zoom’s stock, but there’s a lot to like about the company at its current price. Shares have come so far back to earth from their 2020 highs that Zoom is looking more and more like one of today’s best value stocks. If for nothing else, the latest earnings report wasn’t all bad.
Revenue reached $1.102 million, up 5.0% year-over-year. Third-quarter revenue beat both Wall Street and Management expectations—$1.100 million and $1.098 million, respectively. While it declined 4.0% year-over-year on a non-GAAP basis, earnings per share came in a lot higher than both Wall Street and management predicted. Perhaps even more encouraging, however, was the rate of growth witnessed in Zoom’s enterprise business. Enterprise revenue grew 20.0%, to $614 million. With the increase, enterprise revenue now makes up 56.0% of Zoom’s total revenue, a number which is expected to continue growing. The number of enterprise customers grew 14.0%, jumping from 183,700 to 209,300; that’s very encouraging in a post-pandemic society.
All things considered, Zoom is making great progress with its enterprise services and reducing churn on smaller clients. The company’s stock price, however, doesn’t appear to reflect future growth. Since revenue is expected to continue trending up for at least the next few years, Zoom looks like an objectively undervalued stock. In the event Zoom can continue to grow its enterprise business (which looks entirely possible) and put its large cash reserves to good use (like a buyback program to reduce dilution brought about by employee compensation), it won’t be hard to look back at today’s price as a great buying opportunity. In fact, not that much needs to lean in favor of Zoom for it to become one of the best value stocks on the market.
PayPal Holdings, Inc.
PayPal is the digital payments platform which pioneered the term “fintech.” Officially founded in the late nineties when it was part of eBay, PayPal officially spun out of the online retailer and IPO’d as its own public company in 2015. Since its initial public offering, PayPal has amassed hundreds of millions of active user accounts and helped each of its customers conduct online, digital payments in more than 200 markets across the globe.
Despite being entrenched at the forefront of the fintech industry however, PayPal has had a rough year. For the better part of 12 months, in fact, PayPal shares have sold off on the heels of a broader market selloff and misunderstood quarterly reports. Year to date, shares have dropped considerably in the wake of several negative indicators.
Shares started selling off in the broader technology rout onset by the threat of inflation and higher borrowing costs. Investors traded high-growth tech stocks like PayPal for commodities and companies that were more shelled from inflation. However, Wall Street misjudged PayPal, as the payments processor actually benefits from inflation. As customers spend more money on their platforms, PayPal can collect a larger processing fee. It became abundantly clear that PayPal was oversold in the recent exodus out of tech.
In addition to the broader market selloff, PayPal’s earnings reports have been less than encouraging for investors. Revenue growth, in particular, was lackluster, as growth appears to have been held back by dwindling ties with eBay. That said, PayPal is close to completely severing ties with its former business partner, and should be able to increase revenue growth once the tie has been cut.
Recent sentiment has dropped PayPal’s PEG ratio to 3.74x, making it inexpensive relative to its peers. Today, PayPal is trading at the same level it was at five years ago, before adding hundreds of millions of users. That, combined with the growth of PayPal’s flagship product Venmo, suggests Wall Street is underestimating the company’s future prospects. Therefore, PayPal looks like one of the best value stocks to buy right now.
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The Best Value Stocks For Beginners In 2022
Meta Platforms, Inc. (NASDAQ: META)
Bristol-Myers Squibb Company (NYSE: BMY)
Morgan Stanley (NYSE: MS)
Meta Platforms, Inc.
One of the best cheap stocks to buy today, at least from a technical analysis standpoint, may be Meta Platforms, Inc. Previously known as Facebook, Meta Platforms is the same social media company that has become synonymous with many of today’s most popular brands: Facebook, Instagram, WhatsApp, Oculus, and several other influential tech-focused subsidiaries. Yet, despite serving more than 2.88 billion people across its core products, Meta Platforms appears to be underperforming, relative to its peers. With shares trading around 14 times earnings, Meta appears to be trading at a discount. In fact, you could argue shares are trading like a “worst-case” scenario has already taken place. Despite the underperformance, however, Meta has a clean balance sheet and a long runway ahead of it. In the event Meta is able to realize its dream of the metaverse and optimize revenues generated by its many advertising platforms, the social media platform will be considered one of the best value stocks to buy in 2022.
Bristol-Myers Squibb Company
Bristol-Myers Squibb is a biopharmaceutical company specializing in three particular healthcare sectors: oncology, immunology, and cardiovascular therapeutics. BMY has become one of the most credible names in an industry which could use more of them. Despite being one of the biggest players in the healthcare industry, the stock actually ended 2020 down from where it started. At a time when the entire market shot up, BMY remains relatively stagnant. That said, BMY has many tailwinds expected to work in the company’s favor moving forward. The 2019 acquisition of Celgene and other promising drugs should help BMY grow from today’s cheap valuation. On top of that, BMY has a relatively low P/B and price-to-sales ratio, making the stock look more attractive than alternatives in the same industry.
The entire financial sector lagged in every major market index, and Morgan Stanley was no exception to the rule. Over the course of the last few years, Morgan Stanley underperformed the broader market because of low interest rates. Nonetheless, the company’s recent performance wasn’t due to its own shortcomings but rather the lasting impact of the Coronavirus. Morgan Stanley is still one of the best names in the financial sector, and its recent performance makes it a good value, especially with the economy about to open back up again. Additionally, Morgan Stanley’s P/E and P/S ratios suggest that the company is undervalued compared to its peers.
How To Find Value Stocks
To find value stocks, investors must first know what to look for. It isn’t enough to look for stocks that are cheaper today than they were in the past; that’s not how value stocks work. Instead, investors need to look at the underlying fundamentals relative to the company’s prospects (along with other indicators). Not surprisingly, there are many things investors need to look into to find value stocks, which begs the question: Which metrics will help investors find value stocks?
Investors need to consider several important metrics when finding the top value stocks, but there are three which demand a little more attention than the rest of the pack:
P/E ratio: Otherwise known as a price multiple (or earnings multiple), the P/E ratio (price-to-earnings ratio) is a metric used to value a company based on its current share price relative to its earnings per share. Typically the most common and most popular valuation tool, the P/E ratio, is best used to compare companies within a similar industry. To calculate the P/E ratio, divide a company’s stock price by its earnings last year. To be clear, there’s no objectively “good” P/E ratio, but 15 is usually the differentiator between value stocks and expensive stocks; those below 15 are usually considered “cheap,” while those above 15 are either fair value or expensive.
PEG ratio: Short for “price-to-earnings-to-growth” ratio, the PEG ratio isn’t all that different from the previously discussed P/E ratio. While the PEG ratio helps prospective investors identify a value, it also adjusts to account for different growth rates. To calculate the PEG ratio, divide the P/E ratio by the company’s annualized earnings growth rate. Anything lower than 1.0 typically suggests the stock is cheap.
Price-to-book (P/B) ratio: Many investors have grown accustomed to valuing companies based on their book value, or the company’s total net assets. However, investors may use a stocks’ respective share price as a multiple of its book value to identify cheap buying opportunities. Stocks trading for less than their book value may represent buying opportunities.
It should be noted that these metrics aren’t the only things investors should use to find value stocks but are instead used in addition to other tools. If, for nothing else, these metrics aren’t guaranteed to identify undervalued stocks, nor do they work for every company or even the growth stage the company is in. For example, some companies may not even have earnings, which would render these metrics moot. Therefore, it is better to look at these metrics as compliments to a larger valuation strategy.
The market has experienced every end of the spectrum in one year. Last year, the market experienced one of the most dramatic downturns in history when COVID-19 was officially declared a pandemic. However, the market always drops faster than it rises and rises more than it drops (at least that’s what history tells us). Since the crash, the market has done nothing but improve, less a few corrections here and there. In that time, investors were introduced to some of the best value stocks the market has ever seen. In a matter of weeks, the market gave out some of the best discounts anyone could ask for. Those fortunate enough to be able to find the top value stocks are reaping the rewards. Those listed above have already paid off well, but identifying the best value stocks moving forward well hey new investors establish lucrative positions in the future.
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