In this article, we will look at the 10 best value stocks to buy for the next decade.
During the five years from 2017 to 2021, the majority of the value stocks underperformed the broader market and growth stocks significantly. In this period, The SPDR Portfolio S&P 500 Value ETF (NYSEARCA:SPYV) observed a modest increase of just over 50%. The exchange-traded fund (ETF) replicates the performance of the S&P 500 Value Index, which comprises stocks that are undervalued compared to the broader market. In comparison, the SPDR Portfolio S&P 500 Growth ETF (NYSEARCA:SPYG) outperformed the value ETF by more than three times by posting a gain of over 150%. Meanwhile, the SPDR S&P 500 ETF Trust (NYSEARCA:SPY), which duplicates the performance of the S&P 500 Index, outperformed the value ETF by gaining 112% during the same period.
However, the economic situation changed at the start of 2022 when the conflict between Russia and Ukraine, along with other developments, resulted in inflation reaching a multi-decade high. The raging inflation caused the Federal Reserve to increase benchmark interest rates from March 2022 onwards. There have been four interest rate hikes till now, and the federal funds rate has risen from 0.25% to 2.5%. The rising interest rate brought the growth stocks into the limelight as the cost of borrowing increased and raised investor concerns about whether growth companies would be able to sustain their trajectory.
During times of economic uncertainty and rising inflation, value stocks gain prominence, which has been the case in 2022. Value stocks trade at a cheaper valuation compared to their earnings and long-term growth outlook. Popular companies like Citigroup Inc. (NYSE:C), Intel Corporation (NASDAQ:INTC), and Exxon Mobil Corporation (NYSE:XOM) are amongst the stocks said to be trading at a discount to their fair values currently. Since the start of the year, the S&P 500 Value ETF has lost only 4.8% of its value. Meanwhile, the S&P 500 ETF and S&P 500 Growth ETF have experienced a fall of 11.2% and 16.2%, respectively, during the same period.
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Our Methodology
We have taken an in-depth look into these companies’ valuations and their growth prospects to assess if the stocks are trading at a discount to their fair value. All the stocks included have a PE ratio of less than 15 as of August 16. We used the hedge fund sentiment concerning each stock as of Q1 2022 to rank them in ascending order of the number of hedge funds having stakes in them.
Best Value Stocks to Buy for the Next Decade
10. FedEx Corporation (NYSE:FDX)
PE Ratio: 11.29
Number of Hedge Fund Holders: 52
FedEx Corporation (NYSE:FDX) is an American conglomerate providing transportation and e-commerce solutions.
In FY 2022, FedEx Corporation (NYSE:FDX) saw its revenue rise to $93.5 billion, reflecting an increase of 34% from 2019. The increase in revenue was spurred by the Covid-19-related restrictions which resulted in higher online orders and boosted the company’s ground shipments. FedEx Ground segment revenue growth increased by 61% from 2019 to 2022.
FedEx Corporation’s (NYSE:FDX) management anticipates higher operating margins in the next year, fueled by improved revenue quality and greater dependence on technology. In FY 2022, FedEx’s total number of outstanding shares increased by 1% to 267 million from 265 million in 2019.
Analysts are valuing FedEx Corporation (NYSE:FDX) at $299 per share, which represents a 30% increase from its current trading price of $230 as of August 16. The company is appealing from a valuation standpoint because it is currently trading at 10x forward adjusted earnings. This is much lower compared to an average of 14x observed over the previous 3 years.
Artisan Partners shared its stance on FedEx Corporation (NYSE:FDX) in its Q3 2021 investor letter. Here’s what the firm said:
“Our weakest Q3 performers included FedEx. Shares of FedEx, a global shipping and logistics firm, were held back by disappointing business results as labor cost headwinds and air network disruptions overshadowed solid top-line trends. We think the company should be able to overcome these near-term issues. Importantly, FedEx has strong pricing power as it operates in a consolidated global shipping industry. In September, the company announced it would increase its shipping rates by an average of 5.9% across most of its services, which is the first time in several years that its annual increase would exceed 5.0%. The industry’s renewed pricing discipline is a welcome change, reflecting a broader commitment to earn better returns on invested capital. FedEx is also closer to fully integrating TNT, a European-focused parcel company it acquired in 2016. The market is beginning to incorporate a higher probability FedEx will fully integrate TNT, which will provide a significant boost to profits. The stock now trades at a near-trough multiple of less than 12X 2022 earnings, so we added to our position on weakness.”
9. United Rentals, Inc. (NYSE:URI)
PE Ratio: 13.94
Number of Hedge Fund Holders: 47
United Rentals, Inc. (NYSE:URI) is a construction and industrial equipment rental company. The biggest equipment rental company in the world has more than 880 stores spread across the US and Canada.
United Rentals, Inc. (NYSE:URI) stock price has taken a beating due to a probability of a recession looming and a high level of debt. However, analysts believe that the company has the ability to slash its capital expenditure during an economic downturn and has long-dated debt on its balance sheet. Furthermore, United Rentals, Inc. (NYSE:URI) is expected to benefit from the growing trend of renting large equipment rather than owning it. This was also reflected in the company’s rental revenue growth in Q2 2022. Despite inflation and supply chain-related challenges, construction and industrial activity are still on the rise and the company is experiencing strong fleet productivity.
United Rentals, Inc. (NYSE:URI) is gaining market share due to its one-stop-shop business model. The company is expected to outpace its competitors due to its unique blend of technology, job site solutions, and premium customer service provided.
Clearbridge Investments presented its positive outlook on United Rentals, Inc. (NYSE:URI) in its Q1 2022 investor letter. Here’s what the firm said:
“More promising was the performance of several of the portfolio’s core compounding growth names. Construction equipment leasing company United Rentals (NYSE:URI) benefited from continued improvement of non-residential construction trends. The leading contributors to absolute returns during the first quarter included United Rentals.”
Of the 912 hedge funds in Insider Monkey’s database, United Rentals, Inc. (NYSE:URI) was held by 47 funds as of Q1 2022.
8. Valero Energy Corporation (NYSE:VLO)
PE Ratio: 6.58
Number of Hedge Fund Holders: 47
Valero Energy Corporation (NYSE:VLO) is a San Antonio, Texas-based manufacturer of essential fuels and other petrochemical products.
In the last five years, Valero Energy Corporation (NYSE:VLO) has performed better than its notable competitors, namely Exxon Mobil and Chevron. The stock offers a healthy dividend yield of 3.92% as of August 16.
Valero Energy Corporation (NYSE:VLO) is anticipated to have a strong future outlook due to the global shortage of refining capacity and improving cost advantage. The global refining industry has lost Russian semi-refined products following the start of the conflict between Russia and Ukraine. This is expected to cause RBOB gasoline spreads to touch nearly $16 in winters and around $25 during summers between 2023 to 2025. Meanwhile, during the 2010s, this spread used to hover around $18 during the summers and $6 in the winter.
The Russia-Ukraine conflict has also caused natural gas prices to rise significantly across Europe, making European refiners lose their cost advantage due to higher input costs. US refiners like Valero Energy Corporation (NYSE:VLO) now have higher refining margins due to cost advantage and will continue to enjoy them in the future as well.
Millennium Management raised its stake in Valero Energy Corporation (NYSE:VLO) by 885% during the second quarter of 2022.
7. Laboratory Corporation of America Holdings (NYSE:LH)
PE Ratio: 12.40
Number of Hedge Fund Holders: 49
Laboratory Corporation of America Holdings (NYSE:LH) is a Burlington, North Carolina-based operator of clinical laboratory networks. The company has over 36 primary laboratories in the US and has operations in 100 countries.
Laboratory Corporation of America Holdings (NYSE:LH) has a clinical trials segment that it intends to spin off as a separate publicly listed company. This will aid the company in focusing on the laboratory network business, as clinical trials have taken a hit since the emergence of the pandemic.
The laboratory segment of the company gained prominence during the COVID-19 pandemic due to higher demand. While many expected the demand to taper off, Laboratory Corporation of America Holdings (NYSE:LH) has been able to sustain its growth levels due to premium services. Laboratory Corporation of America Holdings (NYSE:LH) anticipates its EPS to rise by 14% YoY till 2024. The company offers an annual forward dividend yield of 1.14% as of August 16, which translates into a quarterly dividend of $0.72 per share.
The company has a strong share buyback plan in place as it bought back 5.2 million shares in 2021 following investor pressure from Jana Partners. The overall market sentiment also remains positive on the stock. Ann Hynes at Mizuho maintained a Buy rating on Laboratory Corporation of America Holdings (NYSE:LH) stock with a target price of $296 in a report issued to investors on July 29.
Weitz Investment Management presented its insights on Laboratory Corporation of America Holdings (NYSE:LH) in its Q3 2021 investor letter. Here’s what the firm said:
“Labcorp has also been a year-to-date contributor as the company’s traditional lab business continues to recover and as it becomes clear that COVID-related demand will remain elevated for an extended period.”
Overall, 49 funds held a stake in Laboratory Corporation of America Holdings (NYSE:LH) as of Q1 2022.
6. Target Corporation (NYSE:TGT)
PE Ratio: 14.03
Number of Hedge Fund Holders: 50
Target Corporation (NYSE:TGT) is a Minneapolis, Minnesota-based big-box retailer that continued to grow during the pandemic through its e-commerce presence.
Target Corporation (NYSE:TGT) has been working on boosting the sales of its operated brand. The company was successful in achieving this goal as sales for Target-owned brands increased by 18% YoY to $30 billion in 2021. Target Corporation (NYSE:TGT) has a unique e-commerce model that fulfills 95% of the online orders by Stores and does not require the company to hold additional inventory to cater to the demand of the e-commerce segment. Target Corporation’s (NYSE:TGT) annual forward dividend yield stands at 2.46% as of August 16.
The stock has a one-year forward P/E multiple of only 14 times, which is significantly lower than 21 times and 40 times, respectively, for Walmart Inc. (NYSE:WMT) and Costco Wholesale Corporation (NASDAQ:COST). On August 9, Christopher Horvers at JPMorgan increased the price target on Target Corporation (NYSE:TGT) from $180 to $190 and reiterated an Overweight rating on the stock. Experts believe that the selloff provides an opportunity to buy Target Corporation (NYSE:TGT) stock which is gaining market share and on the way to a faster recovery compared to its peers.
Here’s what was said about Target Corporation (NYSE:TGT) in the Q2 2022 investor letter of Ensemble Capital:
“Speaking on their earnings call, Target’s CEO Brian Cornell said that spending on items such as kitchen appliances, TVs and outdoor furniture – products that consumers splurged on while stuck at home – has declined sharply. While they had expected there to be a shift from spending on goods to services as America exited pandemic lifestyles, they didn’t anticipate the speed and magnitude of the shift. On the other hand, they saw luggage sales grow by an astounding 50%, along with robust growth in “going out” categories such as sunscreen, beauty products, and even toys as families return to hosting large birthday parties for their children. So, despite Target seeing increasing foot traffic and higher spending overall, they got caught with the wrong inventory relative to what customers wanted to buy. What this means for investors is that it is incorrect to say that the consumer is weak, despite weakness in some consumer facing companies. Rather what people are spending money on is changing rapidly, which is good or bad for a given company based on what they sell. Importantly, with demand shifting from items that were in short supply, there is good reason to think that inflation in these categories will moderate. Indeed, Target stated that their plan was to put their excess inventory on sale, something that consumers haven’t seen a lot of over the past two years. But as demand for COVID era goods moderates, demand for activities such as travel has surged, driving up inflation in airline tickets and hotel rooms. This illustrates the way that the shock waves from the pandemic have scrambled the typical economic cycle such that even at a time when all signs point to the biggest summer travel season in history, investors are worried that we are headed into, or are already in, a recession.”
In addition to Target Corporation (NYSE:TGT), companies like Citigroup Inc. (NYSE:C), Intel Corporation (NASDAQ:INTC), and Exxon Mobil Corporation (NYSE:XOM) are also on our list of the 10 best value stocks to buy for the next decade.
5. Exxon Mobil Corporation (NYSE:XOM)
PE Ratio: 10.01
Number of Hedge Fund Holders: 72
Exxon Mobil Corporation (NYSE:XOM) recorded strong gains in recent months as natural gas and oil prices rose to almost ten-year highs. During the first quarter of the year, Exxon Mobil Corporation (NYSE:XOM) earned free cash flows of $11 billion. Additionally, Exxon Mobil decided against dumping its own refining and chemical plant capacity, unlike many of its competitors. Over the past five quarters, Exxon Mobil Corporation (NYSE:XOM) has settled 40% of its net debt, bringing it down to only 0.4x anticipated EBITDA of 2022.
Keeping in view the company’s business fundamentals, analysts think Exxon Mobil Corporation (NYSE:XOM) is a solid value stock. Exxon Mobil Corporation (NYSE:XOM) stock is trading at a forward P/E ratio of only 7.56x with an attractive dividend yield of 3.8% as of August 16.
Saturna Capital shared its stance on Exxon Mobil Corporation (NYSE:XOM) in its Q4 2021 investor letter. Here’s what it said:
“Few companies maintain their position at the top for more than a decade or two. One that did was Exxon, which appeared decennially from 1980 through 2010. In 2019 it was ranked 10th, but as of writing has dropped to 39th place.”
4. M&T Bank Corporation (NYSE:MTB)
PE Ratio: 14.51
Number of Hedge Fund Holders: 40
M&T Bank Corporation (NYSE:MTB) is a Buffalo, New York-based regional bank.
With a market cap of $33.6 billion, M&T Bank Corporation (NYSE:MTB) offers a forward annual dividend yield of 2.52% as of August 16. This translates into a quarterly dividend of $1.20 per share. M&T Bank Corporation’s (NYSE:MTB) earnings per share have increased steadily over time. More specifically, with the exception of 2014 and 2020, the company has increased its bottom line each year over the past ten years. Over the last decade, the company’s earnings per share have compounded at 8.2% per year.
On July 21, Betsy Graseck at Morgan Stanley maintained an Overweight rating on M&T Bank Corporation (NYSE:MTB) stock and increased the target price from $203 to $222. The move followed the company’s Q2 2022 results, in which the net interest income growth guidance for 2022 was increased. During the quarter, M&T Bank Corporation (NYSE:MTB) reported lower-than-expected fee income that was offset by lower-than-expected expenses. Following this development, Graseck increased her EPS estimates for the next year by 9%. Analysts believe the rising interest rate environment will be a positive value accretive for long-term investors.
3. Citigroup Inc. (NYSE:C)
PE Ratio: 6.82
Number of Hedge Fund Holders: 88
Citigroup Inc. (NYSE:C) is a New York-based diversified financial services company.
Chris Kotowski at Oppenheimer increased the target price for Citigroup Inc. (NYSE:C) from $81 to $86 in a research note issued on July 18. The analyst maintained an Outperform rating on the stock. Kotowski thinks that the company has a tangible book value (TBV) of $80 per share. According to him, the bank carries a clean balance sheet where non-accruals are only 0.5% of the total loan portfolio. Experts believe that Citigroup Inc.’s (NYSE:C) stock price performance following the Q2 2022 results reflects that the stock is trading at a discounted valuation. Furthermore, the 50 bps improvement in common equity tier one (CET1) reflects that the plan enforced by the new leadership of Citigroup Inc. (NYSE:C) is underway and could be executed successfully in the future.
Diamond Hill Capital shared its insights on Citigroup Inc. (NYSE:C) in its Q1 2022 investor letter. Here’s what the firm said:
“Shares of Citigroup declined in the quarter as investors became increasingly negative on capital markets activity. The company is also continuing to divest certain consumer banking geographies which may be dilutive to earnings in the near term.”
Berkshire Hathaway was the leading hedge fund investor in Citigroup Inc. (NYSE:C) during Q2 2022.
2. Intel Corporation (NASDAQ:INTC)
PE Ratio: 7.75
Number of Hedge Fund Holders: 104
Intel Corporation (NASDAQ:INTC) is an American technology company.
Tech stocks such as Intel Corporation (NASDAQ:INTC) have taken a beating in the recent past due to recessionary fears and supply-chain-related challenges. Intel Corporation (NASDAQ:INTC) maintains a strong market position, as seen by its gross margin of 44.8% and return on equity of 8.8% as of Q2 2022. A strong market presence offers Intel Corporation (NASDAQ:INTC) leverage with its suppliers, giving the company the potential to overcome temporary supply-chain obstacles.
With a PE ratio of 7.75x, analysts think Intel Corporation (NASDAQ:INTC) is trading at a discount of nearly 29% to its fair value. Furthermore, Intel Corporation (NASDAQ:INTC) is a top-tier dividend stock, as seen by the firm’s forward dividend yield of 4.02% as of August 16.
O’Keefe Stevens Advisory Inc. presented its insights on Intel Corporation (NASDAQ:INTC) in its Q1 2022 investor letter:
“Intel announced they are removing stock-based compensation from non-GAAP earnings in 2022 to report results aligning with semiconductor peers. This may seem like a reasonable thing to do as comparability between peers becomes easier. On the other hand, what exactly is the point of adjusted earnings? It is not to conform to some industry norm or because the management teams need to make performance metrics. The point of adjusting earnings is to present results in a light that more closely reflects the actual underlying performance of the business. That is, backing out expenses that might be one-time in nature, such as legal or fire expenses. First off, share-based compensation is an actual expense. Decreasing my ownership stake in a company without receiving any compensation is not free. If a company paid its employees in all stock, would they add back the entire SBC? What a margin profile that would be. Second, should a company be worried about reporting results similar to other companies? Every company is unique. Management should not waste time determining what expenses should be excluded. Run the business, don’t worry about adjusting the numbers.”
1. The Hartford Financial Services Group, Inc. (NYSE:HIG)
PE Ratio: 11.43
Number of Hedge Fund Holders: 32
The Hartford Financial Services Group, Inc. (NYSE:HIG) is a Hartford, Connecticut-based insurance and investment company with an experience of over three decades. The company considers itself a leader in casualty and property insurance, group benefits, and mutual funds.
In a note issued to investors on August 1, Tracy Benguigui at Barclays gave The Hartford Financial Services Group, Inc. (NYSE:HIG) stock a target price of $78 with an Overweight rating following the company’s Q2 2022 results. The analyst highlighted that the management’s commentary was cautiously optimistic following the results and added that the entity provides an attractive risk/reward ratio in the long term. The Hartford Financial Services Group, Inc. (NYSE:HIG) reported better-than-expected EPS during Q2 2022 and approved a new $3 billion share buyback plan, effective from August 1 until the end of 2024. The Hartford Financial Services Group, Inc. (NYSE:HIG) offers an annual forward dividend yield of 2.21% as of August 16, translating into a quarterly dividend of $0.39 per share.
The Hartford Financial Services Group, Inc. (NYSE:HIG) was held by 32 hedge funds as of Q1 2022.
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Disclose. None. 10 Best Value Stocks to Buy for the Next Decade is originally published on Insider Monkey.
