Wall Street has taken investors on a historically lucrative ride for more than a year. Since the market crashed as a result of the Coronavirus in the first quarter of 2020, stocks have consistently marched upwards. Pullbacks threatened to end what is turning out to be a great bull market for investors along the way but never amounted to anything more than a slight correction. When all is said and done, the S&P 500 has increased 74.9% since bottoming out in the first quarter of 2020. However, it is worth noting that 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 May 2022
SoFi Technologies, Inc. (NASDAQ: SOFI)
Advanced Micro Devices, Inc. (NASDAQ: AMD)
Target Corporation (NYSE: TGT)
DICK’S Sporting Goods, Inc. (NYSE: DKS)
The Walt Disney Company (NYSE: DIS)
Meta Platforms, Inc. (NASDAQ: FB)
Skyworks Solutions, Inc. (NASDAQ: SWKS)
FedEx Corporation (NYSE: FDX)
Ulta Beauty, Inc. (NASDAQ: ULTA)
PayPal Holdings, Inc. (NASDAQ: PYPL)
SoFi Technologies, Inc.
Aptly named, SoFi Technologies is a social finance company that operates a predominantly online platform specializing in many financial services. The company made a name for itself by offering more affordable student loans but has since expanded its offerings. Today, customers can expect a wide array of services that include (but are not limited to) student loan refinancing, private student loans, personal loans, auto loan refinance, home loans, mortgage loans, and investments. They also offer insurance products for renters, homeowners, automobiles, and others.
SoFi’s price-to-sales ratio makes the stock look expensive from traditional valuation metrics. At 10.86x, the company’s price-to-sales ratio is one of the highest in the consumer finance industry. On the other hand, the price to book is only slightly above the industry median. The stock looks expensive on paper, but today’s valuations don’t appear to account for the company’s ability to disrupt one of the biggest industries in the world. Additionally, many analysts have already started adjusting their price targets, with several big names suggesting nearly 100% upside over the next 12 months.
Analysts are starting to see that Wall Street may be undervaluing SoFi, and it’s about time retail investors got the opportunity they deserve. At the very least, the company’s most recent quarter suggests SoFi is on the right track (despite its lofty $14.10 billion market cap). Not only is SoFi on the brink of receiving an official bank charter, but its lending business has grown 14.0% year over year. For anyone looking for a growth company, 14.0% may not look great, but SoFi’s Galileo should pick up the slack. Add in SoFi’s growing list of services, and each customer brought in will be introduced to several new products, making acquisitions all the more valuable.
SoFi still has a long way to go, and competition in the fin-tech industry is a real threat. However, if they can increase their customer base, SoFi will continue to look like one of the best value stocks in today’s market.
Advanced Micro Devices, Inc.
One of the best cheap stocks to buy today, at least according to Wall Street’s valuations, is shaping up to be Advanced Micro Devices, Inc. Not only is AMD guilty by being associated with the broader tech industry selloff, but it looks like a strong business in an industry the world is growing increasingly dependent on: semiconductors. When all is said and done, AMD is a promising company with a long runway and a lot of potential, but it’s currently out of favor with analysts who are forced to look at equities with short-term horizons.
Shares of AMD are down about 79% year to date, thanks to Fed rate hikes and investors trading high-growth tech stocks for more secure value plays. Sure, AMD’s share price ran too high over the course of the pandemic, but the latest decline seems to neglect the fact that AMD will play an integral role in the advent of technology.
As one of the leading semiconductor companies on the planet, AMD is in a great position to take advantage of a growing market share. The world’s dependence on electronics all but ensures a growing need for AMD’s semiconductors and graphics processing units (GPUs). Perhaps even more importantly, AMD seems to be taking a large piece of market share from competitors like Intel. It is reasonable to assume AMD will be the beneficiary of both an increasing TAM (total addressable market) and an increasing market share.
Innovations and ties to several groundbreaking industries like virtual reality and electric vehicles have analysts excited for AMD’s future. In fact, forecasts are already calling for AMD’s revenue and earnings per share to grow admirably, to the tune of 54% and 57% respectively.
Despite the promising outlook, AMD is firmly entrenched amidst today’s best value stocks. Subsequently, AMD is even considered a value play in its own industry. With a price-to-earnings growth ratio of 1.11x, shares of AMD appear inexpensive relative to the industry median PEG of 1.63x.
To be clear, shares of AMD are trading well below their 52-week high because of broader market weakness. The inflationary environment created by the Fed is less than desirable for unprofitable tech companies who need to spend more to make more. However, there’s no denying AMD’s position as an industry leader in a field that’s growing with each and every day. As a result, AMD belongs alongside today’s best value stocks. Investors who add to their position now will most likely be rewarded with patience.
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.
Due—in large part—to an infrastructure that was able to adapt to online shopping and a large, faithful consumer base, Target ended last year with more than $15 billion in sales growth. For context, last year’s sales grew more than the previous eleven combined. For all intents and purposes, the pandemic served as a catalyst for Target.
Despite resting comfortably as an industry leader, Target boasts a price-to-earnings-growth (PEG) ratio of 1.11x. Target’s PEG ratio looks inexpensive compared to the Multiline Retail industry’s PEG of 1.32x and competitors like Walmart. Additionally, Target shares are trading somewhere around 15 times trailing 12-month earnings, which low for a company doing so well.
If its current valuation isn’t enough to convince you that Target is one of the best value stocks to buy right now, the broader market transition out of tech and into tangible commodities with real revenue should do the job. The looming threat of rising inflation is causing an exodus from growth stocks into companies with real products and revenue. As a result, Target not only looks like it has some room to run because of its current valuation and promising future, but it’s reasonable to assume it will see a lot of buyers come its way in the first part of 2022.
DICK’S Sporting Goods, Inc.
DICK’S Sporting Goods is an online and physical store retailer which provides goods and services in the sporting goods industry. As its name suggests, each of its stores across the United States sells sporting goods equipment, fitness equipment, golf equipment, and hunting and fishing gear products. DICK’S Sporting Goods also owns Golf Galaxy, Field & Stream, other specialty concept stores, and a youth sports mobile app. Together, a nationwide network of stores has made DICK’S Sporting Goods one of the country’s most trusted sporting goods stores.
However, even with its popularity, DICK’S Sporting Goods was hit hard in the early stages of the pandemic. With a large footprint of physical stores, the retailer took a big loss when quarantines closed many of its locations. When the market crashed, DICK’S Sporting Goods’ stock price dropped about 132%. Since then, the stock has come roaring back and is now at an all-time high. Still, DICK’S Sporting Goods looks like one of the best value stocks to buy right now.
Over the course of the pandemic, more and more people have turned their attention towards health and fitness. As a result, DICK’S Sporting Goods entered into last year with a lot of momentum. According to CEO Edward Stack, “during this pandemic, the importance of health and fitness has accelerated and participation in socially distant, outdoor activities has increased,” and so has DICK’S Sporting Goods’ bottom line.
The company has performed well, and the stock still trades at a bargain. With a price-to-earnings ratio of 8.70x, DKS is trading well under industry peers. If that wasn’t enough, DKS seems inexpensive with a PEG value of 0.47x, below the Specialty Retail industry median PEG of 0.83x. There’s no doubt about it; DKS looks relatively cheap, especially when compared to how most stocks are trading today. Additionally, the company appears to have a lot of secular tailwinds working in its favor.
The Walt Disney Company
To be clear, Disney is not a value play in the traditional sense. With a PEG ratio of 3.16x, it’s easy to suggest Disney may be overvalued. Subsequently, Disney’s 128.82x PE ratio is amongst the highest in the entertainment industry. Every pure valuation metric suggests Disney is trading for more than it should. However, today’s best stocks deserve high valuations. Disney is highly valued because it is one of the most beloved companies globally with perhaps the most valuable intellectual property ever seen.
Despite its valuation, Disney looks like a great deal at the moment. In particular, investors weren’t happy with the number of new Disney+ subscribers. Fewer people signed up than expected, which sent the stock tumbling about 10% in after-hours trading. However, it needs to be noted that Disney has more up its sleeves than its streaming service. Most notably, Disney parks worldwide are up and running again, and revenue was up $3.5 billion in the third quarter. The latest selloff suggests people may have forgotten how profitable the company’s theme parks are. Revenue is returning, and customers are paying more than before the pandemic ever happened. Price increases haven’t scared anyone away and could make today’s stock valuation look like a great deal.
Meta Platforms, Inc.
Formerly known as Facebook, Meta Platforms, Inc. is now one of the best value stocks to buy in today’s market. However, for those who aren’t familiar with the company’s operations, Meta Platforms designs hardware and software to facilitate connectivity. The parent organization of Facebook, Instagram, WhatsApp, and several other subsidiaries, Meta Platforms grew to relevance by making social media a necessary component of nearly a third of the plant’s population. There is no doubting the impact Meta Platforms has had on every aspect of our lives, but the stock has fallen out of favor.
Most notably, Meta’s latest earnings report hinted at slower growth prospects in the early part of 2022. Per the report, Q1 revenue is expected to rest somewhere between $27 billion and $29 billion, suggesting growth may top out at 11%. The report blamed headwinds from Apple’s ad-tracking transparency initiative and a slowdown in user growth. As a result, shares of Meta are dropping fast.
Objectively, at least from the perspective granted by traditional valuation metrics, Meta Platforms appears to be inexpensive. With a PEG ratio of 0.76x, Meta Platforms is currently trading below the Interactive Media & Services industry’s median PEG of 4.05x. The disparity suggests Meta Platforms is trading at a discount, relative to its peers.
However, Meta Platforms looks even more discounted from a more subjective perspective. Not only are shares of the social media giant trading about 46.3% lower following a less-than-impressive fourth-quarter earnings report, but the company’s recent decision to focus on the metaverse has created a unique opportunity to usher in a new generation for the internet of things. Specifically, Meta Platforms has the opportunity to become an industry leader in the development of what has been dubbed “web 3.0.” While relatively early in concept, it has been estimated that web 3.0 may coincide with an $800 billion opportunity by 2024.
If Meta Platforms can retain even a small portion of the metaverse’s market share in the future, today’s price point places the company squarely on the “best value stocks” list. With almost unlimited potential, it seems inevitable that Meta Platforms will return to its all-time high sooner rather than alter, and surpass it.
Skyworks Solutions, Inc.
In association with its own subsidiaries, Skyworks designs, develops, manufactures, and markets proprietary semiconductor products to be sold globally. However, the recent chip shortage has called Skyworks’ short-term prospects into question. The inability to fulfill many of its biggest clients’ orders has forced the market to discount its stock price unfairly. That’s not to say the market isn’t right, but rather that it’s a bit short-sighted. It’s true: the chip shortage does hurt Skyworks’ immediate potential.
As a result, Skyworks is trading with a price/earnings-to-growth ratio of 1.29x, which is low enough to bring it under the industry average. The semiconductor industry trades with a price/earnings-to-growth ratio of 1.60x, making Skyworks look like a bargain. Skyworks looks even more undervalued when comparing its P/E ratio to the industry average—16.35x and 23.11x, respectively.
From a pure valuation standpoint, Skyworks looks undervalued. However, long-term secular trends within the semiconductor industry and Skyworks’ position as an industry leader suggest the stock is one of the best value stocks to buy right now. As more technology continues to rely on semiconductors, Skyworks will continue to grow at a rate investors can be comfortable with. Once the chip shortage sorts itself out and the auto industry increases orders, analysts expect revenues and earnings to increase exponentially, along with share prices.
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 0.68x, FedEx is trading at a discount relative to its peers. The entire air freight and logistics industry has a median PEG ratio of 1.42x, 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. The company’s 13.15x PE ratio is also below the industry median of 15.13x, adding more credibility to the argument that FedEx may be one of today’s best value stocks.
Down approximately 9.8% year to date, and about 20.4% year over year, 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.
In its most recent quarterly report, FedEx sales were up 10% to $23.6 billion, and net income reached as high as $1.1 billion, up 25% from the same period last year. While already impressive, the metrics could have been even better if it were not for the emergence of Omicron in the latter part of 2021.
While FedEx may run into some 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.
Ulta Beauty, Inc.
Aptly named, Ulta Beauty is a retail powerhouse amongst the specialty retail industry. Each of the company’s 1,264 retail stores across 50 states offers shoppers a wide variety of beauty and healthcare products, from cosmetics and fragrances to make-up and salon styling tools. Ulta has established itself as the country’s premier health and beauty retailer, whether shoppers are on a budget or willing to spend more on high-end products.
However, despite sitting comfortably at the forefront of its industry, Ulta trades at an attractive valuation. When just about everything seems overvalued, Ulta boasts a price/earnings-to-growth ratio of 0.38x. The entire specialty retail industry, on the other hand, has a slightly less modest PEG ratio of 0.83x, which makes Ulta look very affordable.
In addition to its valuation, Ulta is set to benefit immensely from a reopening economy. As people go back to work and out in public more, Ulta products will see an uptick in use, and share prices will reap the rewards.
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. In as little as eight months, shares have dropped 222%, going from an all-time high of $310.16 to today’s $96.57.
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 fourth quarter earnings report was 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 1.54x, 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
Berkshire Hathaway Inc. (NYSE: BRK-B)
Bristol-Myers Squibb Company (NYSE: BMY)
Morgan Stanley (NYSE: MS)
Berkshire Hathaway Inc.
It is typically better for new investors to build their portfolios on solid foundations, and no foundation is stronger than starting a position in Berkshire Hathaway. The product of Warren Buffett himself, Berkshire Hathaway, has become synonymous with Wall Street’s greatest stocks. The company represents the unique convergence of more than 60 wholly-owned businesses and more than four dozen different positions in some of today’s greatest equities. Buffett himself is a value investor and rarely strays from his ideology, which means an investment in Berkshire Hathaway represents an investment in value.
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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