The bull market has hit a recent record; the S&P 500 has enjoyed a five month high. Nonetheless, most heed the warning of the familiar expression: What goes up must come down. During bull markets, most people are inclined to stick with growth stocks.
Once the economy shifts, investors start looking for value stocks. Considering the Federal Reserve has plans to reduce its balance sheet by trillions of dollars over the next few years, savvy investors are well aware large cap value stocks perform best, historically speaking, during these eras of budgeting.
A value stock typically trades at a lower price relative to its dividends, earnings, sales, and other fundamentals.
Those investors more inclined to choose value stocks are generally of the belief these stocks are undervalued. Value stocks often have a low price-to-book ratio and a high dividend yield.
These stocks are not just cheap for the investor; there are plenty of cheap stocks out there which will not offer the same healthy performance as a true value stock. These higher quality stocks are essentially offered by better companies selling shares at a discount. The “value” is the needle in the haystack or, better, the buried treasure in times of high volatility.
For those seeking value stocks to buy now, here are 3 suggestions:
You’ll know a value stock when you see a bargain price for a good, mature company with a stable dividend issuance for less than most of the company’s peers in the same industry. Sometimes, the media has recently thrashed a company, airing out legal disputes or unattractive earnings reports which influence most investors to jump ship.
But make no mistake – when deciding to venture into value stocks, one is entering the neighborhood of famed investor Warren Buffet:
“Better to buy a great business at a fair price, than a fair business at a great price.”
Investors walking in Buffett’s footsteps have learned value outperforms growth in the longterm. For nearing a century, value demonstrates 13.3% annualized gains whereas growth touts only 9.3% for growth, according to John Buckingham, a fellow value investor and chief investment officer at AFAM Capital Asset Management.
#1: Kraft-Heinz (NASDAQ:KHC) is a value stock worth investing in not only for the price, but, for the longevity and business innovation.
KHC is developing products and making improvements in two key methods: firstly, they’re working on their highest selling products (the ones bringing in more than $1 billion in sales) to include Kraft, Heinz, Oscar Mayer, Planters, and Philadelphia. Among these improvements, they’re taking their best, most familiar products and making them better (for example, taking artificial ingredients out of Kraft Mac ‘n Cheese. Secondly, they continue to create new products, such as Devour frozen meals and “Just Crack an Egg” convenience packs.
According to analyst Bryan Spillane, KHC is prepped to expand its international reach and leverage scale advantages in the hopes of driving up margins. He anticipates sales growth to pick up during the second half of this year.
#2: For a value stock to invest in which is really going places, research into the new lifestyle choices driving up the tried and true Winnebago Industries Inc. (NYSE:WGO) stocks.
If you haven’t noticed the trend of travel life among the generation driving the market trends, there’s a huge opportunity not to be missed.
That’s right – millennials are changing the way we shop, eat, use technology, and, now, how we live day-to-day to include travel life. You might not expect a stock associated with retirement, like the RV giant WGO to get a boost from the younger generation, but, camp life and road adventures are high trending with 6 million more camping households estimated in 2017 over 2014. According to the 2018 North American Camping Report, it’s not the baby boomers driving growth – add Generation X to millennials and you’re looking at about 76% of the client base.
The main companies vying for top status in this burgeoning RV and camping market are Winnebago, Thor, and Forest River. Just to add to relevancy, WGO went and bought a powerboat manufacturing company, Chris-Craft with the belief the younger generation of travelers are soon to migrate to the water. With cheap valuation at 13.5 times earning, this is a great value stock to consider buying now.
#3: All those travelers are getting by on this value stock: Starbucks Corporation (NASDAQ:SBUX).
Now is a pretty ideal time to buy up some SBUX shares as the company is selling at bargain and well below the company guidance for this year. Compared to other large-cap stocks, it’s a steal: as the S&P 500 tends to trade for 24 times the previous year’s earnings, SBUX is selling for 31% less than most large-cap stocks these days.
This business remains at a high quality status and has several plans in the works for future growth. Though sales have weakened slightly over the past year, the company has made the most of it to include making way for expansion in the United States as well as overseas. With options for expanding to China who, at the moment, has a small presence of company, developing in China would make for the biggest single Starbucks market.
Add to this the strong payout record and the 3% dividend yield, this is a value stock worth considering at the current price tag.
Value stocks are not for the risk-adverse: When searching for the best stocks to buy, prepare yourself for a long, bumpy ride.
One should note the investment in value stocks may come with more risks than growth stocks. The market takes a generally skeptical view of value stocks over growth stocks. Value stocks are most profitable when the market changes its perspective of a company whereas growth stocks rely on development. If you’re interested in value stocks, be prepared to sit in for the long haul to see a return which, generally speaking, will turn out more profitable than a growth stock over time. Of course, there is still a chance the return does not prove worthy – even over time – just like with any other stock, so, do your research and watch performance carefully.
For more strategies on getting by in a volatile market, read Time for a Mid-Year Portfolio Check Up: These Five Stocks May Bolster Your Investment Strategy.