The past decade hasn’t been kind to value investors, and their ranks have thinned. But John Rogers Jr., co-chief executive of Ariel Investments, has stayed the course. And his patience and contrarian style of investing are starting to pay off.
The markets are underestimating the strength of a postpandemic recovery, Rogers says, and that bodes well for areas that have been largely ignored in recent years, including smaller companies and those in cyclical businesses such as financials and industrials.
The catalyst is happening now: As interest rates go higher and inflation starts to come back, the value of future earnings of growth stocks won’t be valued as richly. A higher-interest-rate environment is going to be a great tailwind for value investors.
It’s going to surprise people and happen sooner than people think. The economy is coming back so strong. There’s so much pent-up demand. We’ll get this huge stimulus plan from President Joe Biden, and it’s going to put a lot of pressure on commodity prices and wages.
Here are Top Value Stocks That you should be looking into:
Lincoln National Corp. (ticker: LNC)
Lincoln National is a diversified life insurance company. The stock was down about 14% in 2020 even though revenue was up 15.6% and net income was up 347.2% last quarter year over year. Persistently low interest rates are a headwind for life insurers and have negatively impacted investor sentiment, but Lincoln National shares trade at just five times projected 2021 earnings. As the labor markets improve, demand for Lincoln’s retirement products should rebound. The stock’s valuation likely limits its downside in 2021, and any bullish momentum will be supplemented by the stock’s 3.4% dividend.
Kinder Morgan (ticker: KMI)
Travel restrictions, social distancing and economic shutdowns in 2020 have crushed the energy sector, and shares of natural gas pipeline giant Kinder Morgan were down about 35% in 2020. Kinder Morgan understandably struggled with declining revenue and earnings in 2020. Many other energy sector stocks have slashed or suspended dividends in 2020. However, Kinder Morgan recently announced a 3% dividend hike for 2021, a clear sign of how well the company has navigated the crisis. KMI stock trades at just 15.3 times forward earnings, and the new dividend represents a sizable 7.8% yield.
Ford Motor Co. (ticker: F)
Ford is one of the world’s largest automakers. Tesla (TSLA) and other electric vehicle companies have been among the top performers in the market in 2020. Tesla shares are up more than 700% in the past year and trade at around 170 times projected forward earnings, making Ford shares look like a tremendous value at just 8.4 times forward earnings. Ford recently announced $3.2 billion in EV investments, and the first edition of its EV Mustang Mach-E is already sold out. Last quarter, Ford generated $2.4 billion in net income compared with $331 million for Tesla.
Bristol-Myers Squibb Co. (ticker: BMY)
Bristol-Myers Squibb is a biopharmaceutical company that specializes in oncology, immunology and cardiovascular therapeutics. The stock was down about 1% in 2020, but revenue was up 75.4% in the third quarter and net income grew by 35.7% compared with a year ago. Much of that large revenue jump came from Bristol-Myers’ acquisition of Celgene. The debt the company took on to complete the Celgene deal is likely one of the main reasons why BMY stock has underperformed and currently trades at just 8.3 times forward earnings. As Bristol-Myers pays down its debt, expect its stock to rise.
Morgan Stanley (ticker: MS)
Bank balance sheets got a vote of confidence from the Federal Reserve in December when the Fed cleared banks to resume buyback programs in the first quarter of 2021. Morgan Stanley wasted little time, authorizing up to $10 billion in buybacks for 2021, about 8.1% of the stock’s current market capitalization. Those buybacks will help boost earnings per share in coming quarters, and Morgan Stanley shares already trade at just 13.2 times projected 2021 EPS. Morgan Stanley reported 16.2% revenue growth and 25% net income growth in the third quarter, and that momentum should continue in 2021.
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