10 Stocks for Value Investors
Date: 22 February 2016 Share on Twitter Share on Facebook
What do you look for in a stock?
If value for money and reliability are top of the list, you’re probably what’s known as a value investor, searching for stocks that appear to be undervalued by the market.
Because prices are affected by multiple factors other than the firm’s intrinsic value and future prospects, there are stocks out there trading at bargain rates – if you know where to look. Here are some ideas to get you started:
Nutrisystem currently looks in better shape than its rival Weightwatchers. With a continually expanding product range, and positive results expected to be announced on Thursday, the current low stock price of around $20 has more to do with market fluctuations than the company’s prospects.
Qualcomm shares have fallen over the past year thanks to flailing demand, from $74 last March to $42 last week. However, the company’s development of the first gigabit chip and speculation about potential acquisitions this year suggest that it is still undervalued by the market.
A useful indicator for value investors is the ratio of share price to earnings per share, or the P/E. The gradual recovery in the US bodes well for the automaker industry, and General Motors is trading at a P/E of under 5 – lower than competitors Honda (10.7) and Ford (7.44). American Axle & Manufacturing Holdings, which supplies auto parts to vehicle producers, should also benefit. After trading between $2025 for most of 2015, the current price of around $15 is quite attractive.
Another key factor is a stock’s dividend, which provides assured income and shows how well the company is earning. Alaska Air announced its third consecutive annual dividend raise, of 38 per cent, last month. A brand relaunch, new routes this year, and positive final quarter results are all also encouraging – as is the current level of oil prices.
Plummeting oil prices over the past few months have routed the entire sector, but signs of an agreement between Russia and OPEC to limit production suggest that the worst might be over – at least for now. Every oil stock has suffered, but some companies could eventually profit from the chaos.
One of those is National Oilwell Varco. The company’s level of indebtedness is the lowest in the sector, allowing it to acquire jettisoned assets and competitors cheaply in the coming months. It’s currently trading at a heavy discount thanks to a heavy fourthquarter loss, but is well placed in the long term to return to health.
Another pick in the sector is Phillips 66. As their main business is refining oil into gas, low oil prices are the opposite of a problem, but the company is still trading at a P/E of 10.57 – far lower than big boys Exxon Mobil (21.55) and Chevron (36.21).
You may not have heard of Reckitt Benckiser, but the consumer good brands that it owns are household names over in the UK. Trading at a P/E of 25, experts consider it an ‘expensive defensive’ stock – the asking price is high, but reflects how solid the company’s fundamentals are.
Also worth a look is Daimler, the parent company of MercedesBenz, which achieved record annual sales in 2015. On Tuesday CEO Dieter Zetsche extended his contract to 2020, and a new director of Research and Development was appointed. Currently trading around $72 after hitting a year low of $66 earlier this month, it looks a bargain as recently as December it was at almost $95.
Out of leftfield
Negative interest rates but an unfathomably strong currency make Japan a conundrum – but the recent havoc offers opportunities for bargain buying too. Panasonic is currently trading around $7.8 – under half its 2015 high – but should have the staying power to ride out the chaos.