The best value stocks typically have two things in common. First, they are associated with companies having consistent profitability and revenue. Second, they trade at lower values relative to their earnings or other similar metrics. The basic premise behind value investing is finding a company trading at a significant discount to the intrinsic value of the company. Of course, this is easier said than it is to do.
The Best Value Stocks to Buy Now
- United Rentals (NYSE: URI)
- Eaton (NYSE: ETN)
- FedEx Corporation (NYSE: FDX)
- AT&T Inc. (NYSE: T)
- Pentair (NYSE: PNR)
- Allstate Corp (NYSE: ALL)
Finding the Best Value Stocks
Whether an investor believes picking the best value stocks is a science, an art form, or a combination of both, almost all of them are compelled by the strategy. Value stocks are essentially low-risk, high-reward scenarios. This is because the negativity is already priced into the stock, and the rebound potentials can result in staggering profits. Of course, every situation has a downside, and for value stocks, it’s that sometimes there are reasons stocks are undervalued. Picking the best value stocks right now can be difficult, so here are our top six choices.
1. United Rentals (NYSE: URI)
What happens when an economy is strong enough to encourage using industrial equipment, but confidence in the strength of that economy lasting is shaky at best? Do industrial-oriented companies and construction outfits rent instead of buying?
In reality, most organizations using equipment ranging from excavators to scissor lifts prefer leasing equipment rather than purchasing it. When the future is murky, though, the environment for businesses like United Rentals (NYSE: URI) usually goes from a good prospect to an excellent one.
The company experienced a shaky 2018, including stock trading at times 34% below it’s March 2018 peak. The majority of the damage was thought to be completed in September 2018 due to fears of a construction slowdown and escalating China trade war.
Many sellers overshot their target, with professionals still seeing revenue growth and profits in the future. Experts anticipate sales growth to slow to around 4% in 2020, but expect earnings to advance another 12% still. Newcomers have the opportunity to plug into projected profit growth at around six times 2019’s estimated earnings.
2. Eaton (NYSE: ETN)
With a stock price of nearly 12 times next year’s anticipated earnings and less than 15 times trailing profits, Eaton definitely has a place in investors’ portfolios.
The company manufactures several power-management products, including motion controllers, air handling hardware, clutches, valves, and hydraulic pumps that meet the needs of the mining, utilities, building management, and transportation industries. Eaton prides itself on having something for everyone to buy, and the chances are good every consumer and investor in North America are benefiting from Eaton’s portfolio one way or another.
While this doesn’t guarantee annual revenue growth every quarter, over time, Eaton grows the top line more often than not. Even more reliable is the forward progress of its operating income.
There is a good chance this track record, along with Eaton’s growth rate, is on the cusp of even greater improvement. Analysts have upgraded ETN several times since August 2018, and additional research outfits have started a bullish stance of coverage in the stock.
3. FedEx Corporation (NYSE: FDX)
FedEx isn’t a growth stock. The bottom line being there’s only a limited amount of delivery business available both here and abroad, with the majority of it being completed to client satisfaction. Established competitors like United Parcel Service (UPS) and DHL help maintain pricing for all three competitors.
However, even by value stock measures, a 35% year-over-year decline results in FDX shares being undervalued with a forward-looking P/E of under 10.
There’s no singular reason for FDX stock’s decline. Amazon.com (AMZN) handling more of its shipping needs inhouse is one area of concern, along with the slowdown of global economics due to trade wars leaving investors wary. Quarterly misses and decreased earnings for 2019 also initiated profit-taking of FDX that started 2018 in an over-purchased condition.
As the dust settles for all of these areas, it’s abundantly clear FedEx continues to be the company it was last year, four years ago, even five-plus years ago. In fact, FDX has reported revenue growth each quarter since 2010. While not as constant, it’s earnings growth also continues to be impressive. There’s a great deal to be said about reliability, and many experts point to FedEx’s ability to make it through the last recession with minimal cuts and bruises.
4. AT&T Inc. (NYSE: T)
AT&T stock is still down from its peak in mid-2016, reaching new multiyear lows in December 2018 before starting its incline to current still-depressed levels. The most curious part of all this is there’s really no reason experts can identify for it, especially not for the lows it has been at.
While 2018’s top line decreased, it was being compared to extreme growth in 2016 that was impacted greatly with the acquisition of DirecTV. The same can be said for operating income, which experienced significant pressure in 2017 as the industry as a whole was in a price war, leaving all key players bruised and battered.
If the negative impact of the price war wasn’t enough, many investors also had concerns about whether the company’s costly acquisition of Time Warner would be a profitable decision. However, these investors seem to have priced in a catastrophe that never happened. Shares were trading just six times ATT&T’s trailing 12-month earnings and nine times less than next year’s anticipated bottom line.
AT&T isn’t only a deep-value stock. It’s also delivered an impressive dividend for years like clockwork. It’s even a member of the Dividend Aristocrats, a select group of S&P 500 stocks growing their payouts annually for at least 25 years.
5. Allstate Corp (NYSE: ALL)
Hurricane Florence hitting the East Coast and Hurricane Michael battering the Gulf Coast made the last quarter of 2018 a tough one for Allstate and its shareholders. With both storms causing more damage than anyone expected, insurers found themselves making huge payouts.
In September 2018, Allstate paid out nearly $177 million and in October, reported $202 million in losses, the majority a result of Michael. This was in addition to the $529 million paid out to the California wildfires. All in all, the company lost nearly a quarter of its value between September and the end of the year.
Investors unduly punished Allstate, forgetting that wildfires and hurricanes are no longer as unusual of situations as they once were. The company has established premiums that account for these events and take into account extremely large payouts.
6. Pentair (NYSE: PNR)
With nVent and Pentair splitting in the first half of 2018, it was difficult to evaluate the new, smaller company accurately. Even before the split, both amateur and professional investors were navigating towards nVent instead of Pentair, causing the former parent company’s stock to continue the downward trend the started prior to the split.
However, many experts feel the market isn’t giving the now slimmer Pentair the proper respect, reminding people this isn’t the same company that was once holding nVent down. Pentair used the cash it earned from the split to decrease it’s debt from $1.4 billion to $800 million and has plans to embellish its current water-management portfolio.
The company’s new smart/automated pool management solution has already got awards, and its new connected internet-of-things platform Beer Membrane Filtration (BMF) systems use could become a brewery must-have. With so many things happening with this overhauled portfolio, the existing lull may be the perfect buying opportunity.
Top value stocks are best as long-term investments as there’s no way to accurately predict what will happen in the short-term with these companies. Investors should determine which value stocks to buy based on careful research, financial goals, and risk tolerance. Learn more about the best value stocks to invest in by scheduling a free online training session with the team of marketing experts with Raging Bull.