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3 Value Stocks Leading the Value Charge

Wednesday, November 18, 2020 | MarketBeat Staff
3 Value Stocks Leading the Value Charge

The election season and recent vaccine developments have spurred some remarkable shifts in market sentiment. For some sectors it has been out with old and in with the new.

Whether due to expectations of a supportive Biden administration or normalized economic conditions, financial, industrial, and "traditional economy" stocks have suddenly taken the market leadership reins from the technology sector.  

This has coincided with an abrupt investor rotation from growth to value stocks. Whether this reversal it sustainable remains to be seen, but in the meantime, some unlikely winners have emerged to lead the value charge over the last couple weeks.  

The best part? Many are still very inexpensive.

Can The Gap Thrive in the Post-Pandemic Economy?

Shares of The Gap (NYSE:GPS) are already up 33% since the start of November. The catalyst has been the recent wave of encouraging COVID-19 vaccine news.

The one-two punch from Pfizer and Moderna about the effectiveness of their respective vaccines has provided a lift to traditional mall retailers. Except that The Gap is less of a mall retailer these days after announcing the closure of many of its mall-based stores.

Still, the company will have some exposure to shopping malls as well as off-mall locations that are perceived to eventually benefit from improved customer attendance. This helped The Gap's stock price gap up on November 9th to its highest level since May 2019.

Investors are betting that continued progress on the vaccine front will lead to an environment where consumers regain comfort shopping at malls and outlets. Nearly all Gap, Old Navy, and Banana Republic stores have reopened albeit to modest foot traffic.

The potential rebound in-store traffic thesis is being supported by the company's strong online sales performance. Like other clothing retailers, The Gap has seen e-commerce sales surge during the pandemic. Masks alone generated $135 million second quarter revenue.

The Gap is set to report third-quarter earnings next week with the Street expecting EPS of $0.29. With stores reopening and promising vaccine news unfolding, the wheels are in motion for a multichannel retail turnaround story.

At 0.6x sales The Gap is trading below its peer group average P/S multiple. This is shaping up to be a fashionable trade ahead of next week's earnings.

Is Invesco Stock Undervalued?

Financial stocks have received a boost of late thanks to the presumed Biden victory and an outlook for a strengthening domestic economy. One stock that has benefited from the rebound is investment manager Invesco (NYSE:IVZ).

Up 31% month-to-date, Invesco has risen alongside the surging equity markets which is assumed to correlate with higher assets under management (AUM) and therefore higher fees. Putting the market ascension aside, the company's AUM growth has also been the result of steady fund inflows. AUM came in at more than $1.2 trillion last quarter nearly 70% of which resides in its core retail business.

Meanwhile, cost savings initiatives are driving healthier bottom-line results. Invesco is targeting $200 million in cost savings by the end of 2022.

Synergistic acquisitions are expected to be a major part of the efficiency gains. The recent acquisition of Oppenheimer funds has certainly contributed to AUM growth and has made Invesco a leading player in the global asset management industry.

Is it too late to buy Invesco stock? Invesco shares are still down 16% this year and at $15.69 are a far cry from their split-adjusted peak above $50 from way back in November 2000.

Trading volume has certainly been elevated in recent months suggesting renewed investor interest. This along with the AUM growth outlook, below industry 9x forward earnings multiple, and lofty 4% dividend yield still make Invesco a compelling value purchase.

Is WestRock Stock a Buy?

Industrials stocks have also been on the rise due to the perception of a revitalized economy. Higher industrial production and consumer demand falls into the lap of leading packaging company WestRock (NYSE:WRK).

WestRock stock has bounced nicely off its 50-day moving average and is on pace to recoup its 2020 losses by the end of the year. The container and packaging specialist has been an underappreciated beneficiary of e-commerce activity this year especially in the food and beverage packaging categories. However, since the consumer packaging segment accounts for only 35% of the business, the stock hasn't taken off as one may have expected.

For WestRock's business to return to full health, its main corrugated packaging business must gain momentum. This division provides containerboard, linerboard, and similar products to industrial products makers that are used to transport a wide range of merchandise. Although sales in this segment were down 4% last quarter, investor optimism around a more broad-based economic rebound has the market bidding up WestRock shares in recent days.

WestRock's business is far from exciting, but with WestRock you know exactly what you are getting. The company has been a rock when it comes to delivering good earnings news having modestly exceeded consensus EPS expectations in each of the last 20 quarters.

Like The Gap and Invesco, WestRock is selling at a bargain valuation at 14x trailing earnings (versus 40x for the S&P 500 index) and offers a 1.9% dividend yield. If the momentum in value stocks persists, WestRock is likely to remain among the pack leaders.

 

 

 

 

 

Companies Mentioned in This Article

CompanyBeat the Market™ RankCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
The Gap (GPS)1.3$26.87+3.1%N/A-9.60Hold$20.89
Invesco (IVZ)2.7$17.13+4.9%3.62%16.01Hold$12.63
WestRock (WRK)2.0$45.43+5.4%1.76%15.19Buy$39.50
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7 Stocks It May Be Time To Take Profits On

Should you or shouldn’t you? Many investors are wondering if it’s time to take some profit. With so much uncertainty in the market, there can be a temptation to take your profits and run. That may or may not be a good strategy. It’s true there are some speculative stocks that are going up on nothing but faith, trust, and pixie dust. But there are other stocks that may still be good buys despite continuing to grow.

Since the sell-off caused by the novel coronavirus and subsequent locking down of large portions of the economy, the stock market has recovered nearly all of its losses. The Federal Reserve has done its part by pledging to keep interest rates low for as long as it takes. New housing starts are up. Unemployment is coming down. There seems to be a lot of fuel for market bulls.

Still, if you’ve been holding one of the stocks in this presentation, it may be time for you to take some of the profits you’ve made. Many of the stocks in this presentation are being downgraded by analysts. And that means that there is likely to be downward pressure on the stock price.

View the "7 Stocks It May Be Time To Take Profits On".

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