What began as a slight pullback in growth stocks a few weeks ago has now turned into a mass exodus out of growth and into value. Investors need to understand that it takes time for institutional investors to unwind positions and add exposure to new sectors in the market. That’s why it’s still a good idea to consider buying certain value stocks even if they’ve already started to rally. These companies might not have the most exciting businesses or massive growth potential, but they do offer reasonable valuations and less risk and volatility which is very attractive given the recent market activity.
While there are plenty of value stocks that are showing strength these days, investors should be focused on only the best names to avoid getting caught up in dreaded “value traps”. That’s why we’ve put together a list of 3 value stocks to keep in focus as the rotation in the market continues.
While you might be thinking that the tobacco industry is on the decline in the U.S., there’s a lot to like about a company like Altria at this time. While it is true that the cigarette volumes are on the decline, Altria can offset these declines with price increases for many years to come. The company has proven to be resilient throughout the pandemic and reported year-over-year net revenue growth of 4.2% in 2020. It’s also worth mentioning that Altria has more to its business than just cigarettes. With products like smokeless tobacco, vaporizers, e-cigarettes, and wine/beer brands, Altria’s business offers more diversity than meets the eye.
Since Altria’s business model isn’t very capital intensive, it can return a lot of money to shareholders. Investors should be attracted to the stock’s strong dividend yield of 7.64% and the fact that Altria has grown its dividend payouts for 51 consecutive years. Altria also recently announced a $2 billion share repurchase program in January that will boost the share price. Finally, investors should take note of the fact that Altria offers exposure to the growing cannabis market thanks to its 45% stake in Cronos Group. This is a solid value stock that dividend investors should have their eye on at this time.
The energy sector has been rallying lately in tandem with the price of oil, and investors might want to look at a company like Diamondback Energy if they are interested in adding exposure. Energy companies are always at the mercy of oil prices, but there’s certainly reason to believe that prices will stay around their current levels in the near term after Thursday’s announcement that OPEC and allied producers will roll over production cuts during April. There’s also the possibility that the oil demand will rebound sharply as more and more people around the world are vaccinated against COVID-19.
Diamondback Energy is a U.S. independent oil and natural gas company that operates exclusively in the Permian Basin. It’s a strong energy name to own because it’s a financially healthy company that is trading at a low forward P/E ratio of 9.44 when compared to other stocks in the sector. The company recently reported strong Q4 earnings numbers that saw average daily oil production increase by 3% from Q3 along with Q4 free cash flow of $242 million. Diamondback also increased its annual dividend payment by 6.7% to $1.60 per share and the stock currently offers investors a 2.15% yield. Finally, the company recently announced that it is acquiring QEP Resources and Guidon Operating LLC which will provide a 42% increase in Midland Basin acreage and lead to millions of dollars in synergies. These are signs of strength that investors should take note of.
When it comes to deciding which value stocks are worth your time during a tough period in the market, focusing on a diversified blue-chip industrial company makes a lot of sense. 3M has been underperforming the market over the last year, offers a 3.3% dividend yield, and is well off of its all-time highs. Shares are likely undervalued at this time due to concerns about litigation, and the fact that the stock’s dividend yield is on the high-end of the company’s historical dividend yield range might be telling investors something important. Although the lawsuits are a risk worth keeping in mind, there’s enough to like about 3M to consider adding shares.
This is a company that has a history of innovation and generates substantial free cash flows from its wide variety of products in manufacturing, industrial, health care, safety, and consumer end markets. Back in 2019, the company went through a restructuring that could deliver significant earnings upside over the long term. All four of the company’s segments experienced top-line growth last quarter, which could be a sign of good things to come. The stock is trading at a discount relative to the S&P 500 and is one of the best value picks out there at this time.
Before you consider 3M, you'll want to hear this.
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