It’s safe to say this hasn’t been a great year for value investors. While names in big tech, electric vehicles (EVs) and other high-growth industries thrived in 2020, old school value stocks struggled to bounce back after March’s crash. Granted, many of these stocks have now returned to pre-pandemic levels. But, some continue to languish at prices below where they traded at the start of the year.
That said — although widely distributing a Covid-19 vaccine is still a work-in-progress — a return to the old normal appears to be in the cards for 2021. For value picks hard-hit by the pandemic, that means an opportunity to jump back to their respective highs. And for stocks that cratered in March but recovered through the rest of the year? They have the chance at additional gains, as their prospects improve further once we’re in recovery mode.
So, which value stocks belong on your radar for 2021? Any of these 1o names might be your ticket to solid returns in the new year:
- Cardinal Health (NYSE:CAH)
- DaVita (NYSE:DVA)
- Graham Holdings (NYSE:GHC)
- HP (NYSE:HPQ)
- Kroger (NYSE:KR)
- 3M (NYSE:MMM)
- Altria (NYSE:MO)
- PPL Corporation (NYSE:PPL)
- Snap-On (NYSE:SNA)
- AT&T (NYSE:T)
Value Stocks to Buy: Cardinal Health (CAH)
First on my list of value stocks is Cardinal Health, a pharmaceutical distributor with shares that are already back near pre-pandemic prices. However, CAH stock remains a great value opportunity in the healthcare sector.
Why? One reason is its low valuation relative to peers. With a forward price-earnings ratio of 10.08 and an EV-EBITDA ratio of 10.31, Cardinal Health sells at a slight discount to some of its rivals.
But that’s not all. Last month, the company — along with several other drug distributors — settled with state and local-level litigators about its alleged role in the opioid epidemic. With this negative headwind now out of the way, investors may be more willing to push the stock back to historic valuation levels.
A few years ago, CAH stock commanded a price-earnings ratio between 15 times and 20 times. In other words, there’s ample room for additional gains, even as shares are just a few dollars from the 52-week high.
Because of its low valuation, its recent settlement and the substantial upside potential from multiple expansion, you should keep Cardinal Health on your radar.
Dialysis center operator DaVita has been on a tear this year. Shares have surged nearly 48% year-to-date (YTD), with the stock really taking off after election day. But — even after its impressive run — this remains one of the best value stocks out there.
Trading for 13.39 times forward price-earnings, shares look worth it relative to the company’s projected earnings. With the demographic trend of an aging population on its side — plus its aggressive use of stock buybacks — expect DaVita to show solid earnings growth numbers for quite some time.
Couple that with its high profit margins and clear economic moat, it’s easy to see why DVA stock remains a major position in Warren Buffett’s portfolio, too. The legendary investor’s Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) may be best known for its stakes in Apple (NASDAQ:AAPL) and Coca-Cola (NYSE:KO), but a 30% stake in DVA makes it another major Berkshire holding, too.
A solid performer in 2020 with more runway to head higher, add DaVita stock to your watch list.
Graham Holdings (GHC)
Graham Holdings may not be a household name when it comes to value stocks. But, I’m sure you are familiar with its main subsidiary, as well as its history. The firm — formerly known as The Washington Post Company — adopted the current name when it sold its namesake media property to Amazon (NASDAQ:AMZN) CEO Jeff Bezos in 2013.
While that deal took away some of the company’s cache, what it left behind could be described as a treasure trove of value. What am I talking about?
Namely, its flagship Kaplan education unit. Sure, earlier this year the novel coronavirus impacted this segment’s results. But with shares still down sharply from their pre-pandemic prices, Wall Street may be underestimating how quickly this high-margin business can bounce back.
And that’s not all — with other assets in broadcasting, manufacturing and more, there’s plenty of potential here. Per one Seeking Alpha commentator, the breakup value of GHC stock could be $700 per share. The stock currently trades for around $450 per share today.
It’s a bit off the beaten path. But, for a great value opportunity, take a look at Graham Holdings stock.
Sure, personal computers and printers aren’t exactly a high-growth area when it comes to the tech industry. However, HPQ stock has benefited nicely from pandemic tailwinds this year. Why? It turns out that the stay-at-home economy has boosted demand for notebook PCs.
Yet, with the stock still undervalued by Wall Street, there could be room for even more gains with HP. How so? Even after its impressive run-up recently, shares remain cheap at 8.9 times forward earnings.
Granted, investors are rightfully discounting this year’s strong results — they will probably be an outlier. For example, the IDC projects that the double-digit sales growth seen in notebook PCs this year should fall back to 3.2% in 2021.
But — if earnings continue to steadily climb and HP continues to raise its dividend — there’s still runway for additional gains in the coming year. They won’t be as massive as some of the other value stocks listed here, but computer sales are holding steady as the pandemic continues. That means there’s minimal risk of HP pulling back.
The massive stockpiling hysteria that happened in the early days of Covid-19 seems like a million years ago now. But, there are still reasons to be excited about shares in grocery giant Kroger other than the buy-up of toilet paper and canned goods.
Why is Kroger one of the better value stocks out there? Sure, without the need to stockpile again this upcoming March, analysts expect earnings to fall back for fiscal 2022 (the year ending Jan. 2022). But, with the stock trading for 11.59 times fiscal year 2022 earnings, that’s still a reasonable valuation for this consumer defensive stock.
Additionally, Kroger shares also offer a solid dividend yield of 2.31%. Plus, the company’s average dividends per share growth rate has been 12% over the past five years. With the payout ratio a super low 17.6%, there’s room for the grocery giant to reward shareholders with stable, dividend-based returns.
Also, as InvestorPlace contributor Will Ashworth pointed out on Dec. 1, Warren Buffett continues to gobble up KR stock. Last quarter, Berkshire Hathaway increased its position to 25 million shares.
Now, don’t expect Kroger to go parabolic anytime soon. But if you want reliable returns, consider putting this food purveyor in your shopping cart.
Industrial conglomerate 3M has largely recovered from its pandemic declines. Yet, there’s still good reason why this company remains one of the high-quality value stocks you should consider for your portfolio.
Earlier this year, I called MMM stock “a safe harbor as market uncertainty continues.” Markets have recovered, but with growth stocks trading at unsustainable valuation, why not consider this reasonably priced name?
Yes, the industrial conglomerate isn’t the cheapest stock out there. But, trading for 18.12 times forward earnings, it’s much cheaper than other industrial conglomerates like Honeywell (NYSE:HON), which currently trades for 26.81 times forward earnings.
As I’ve previously discussed, 3M was having some issues pre-outbreak in the earnings growth department. And yes, earnings took a brief hit during the worst days of lockdown back in late spring and early summer. But — with earnings per share expected to climb to $9.47 in 2021 after years of being stuck between $7 and $8 — investors may start to give this name a much higher valuation.
With this in mind, a boost to $200 per share doesn’t look out of the question. Right now, the stock trades at $173. So, for a stable and growing dividend yield of 3.39%, reasonable valuation and runway for solid upside in the new year, check out MMM stock.
Altria Group (MO)
This tobacco giant may be best known as a “sin stock.” But, you should consider Altria as one of the value stocks, too. With its low valuation (forward price-earnings of 9.0) and high dividend, this parent company of the maker of Marlboro cigarettes is one of the cheapest large-cap stocks out there.
Admittedly, Generation Z tobacco use trends don’t bode well for the house Marlboro built. But, there may be potential for low volatility gains for those who dive in at today’s prices.
What do I mean? For one, take a look at Altria’s fat dividend. Yielding 8%, MO stock is catnip for income investors dealing with today’s near-zero interest rate environment. True — with its payout nearing 80% — the air’s getting thin when it comes to boosting this in the coming years.
However, with earnings set to continue climbing in the low-single digits, there may still be room to grow this payout in the coming years. And, as InvestorPlace contributor Joel Baglole discussed on Nov. 20, the company’s moves into noncombustible tobacco products — along with its investment in cannabis company Cronos (NASDAQ:CRON) — mean it’s making efforts to avoid long-term irrelevance.
Given it’s in a controversial industry, MO stock isn’t everyone’s cup of tea. But, for a reliable value stock, consider this name a solid buy.
PPL Corporation (PPL)
PPL stock is another name I’ve pointed to as one of the great picks of the value stocks many times this year. As I put it back in August, consider this utility company as a name you can buy for peace of mind.
Why do I feel this way? Trading at 11.92 times forward price-earnings ratio, PPL is priced lower compared to its larger rivals and has a high dividend yield to boot. That makes this overlooked utility stock a fantastic value play. And — while its U.K. unit has been an area of concern — the company is in the process of selling that dead weight. Once sold, PPL can refocus its attention to its more stable units in Kentucky and Pennsylvania.
After selling off during the novel coronavirus crash, shares have held steady between $25 and $29 per share. But, with the stock still below pre-outbreak levels of over $35 per share, there’s room for solid gains in 2021.
So, even if the current crisis lingers on in the new year, PPL stock is another reliable value name to buy in today’s overpriced yet still uncertain market.
Just like DaVita, Snap-On is another workaday value stock, quietly producing solid returns for investors. This high-end toolmaker may have hit a snag when the pandemic first impacted the U.S. economy. But, now in recovery mode and knocking it out of the park in quarterly earnings, shares have more than bounced back to their pre-pandemic prices.
However, despite doubling off its March lows, I believe there’s more left in the tank with SNA stock. Yes, earnings growth may be slow and steady in the high-single digits to low double-digits. But, with a forward price-earnings ratio of 16.34, shares are cheap relative to similar names like Stanley Black & Decker (NYSE:SWK), for instance.
Add in its growing dividend yield now at 2.72% and there’s more reason this overlooked mid-cap stock is a steal at today’s prices.
Sure, this pick of the value stocks may not rally significantly higher come 2021. But, if you are looking for stable returns with minimal downside, Snap-on is one of the better companies to buy.
Last on my list of value stocks is AT&T. Unlike its major rival, Verizon (NYSE:VZ), this company hasn’t been able to return to its pre-pandemic share price. Currently, its stuck in neutral, trading between $25 and $30 per share since March. To some extent, that’s not a surprise.
As InvestorPlace contributor Bret Kenwell discussed on Dec. 7, a factor that’s probably making many traders bearish on T stock is its high debt position. The telecom giant took on billions in debt to finance its acquisitions of TimeWarner and DirecTV. Given its highly-levered balance sheet, it’s no surprise many are waiting for the other shoe to drop.
That is to say, the company could make a big move like cutting its dividend. However, given its lukewarm performance, you can argue Wall Street has already priced much of that risk into shares.
At today’s prices, further downside is minimal relative to gains — if the company exceeds investors’ current low expectations. If its gamble with HBOMax pays off, the dividend stays constant and AT&T takes aggressive action to reduce outstanding debt, expect this stock to head back towards prior price levels of $35 per share and above.
On the date of publication, Thomas Niel held a long position in MO stock.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.
View more information: https://investorplace.com/2020/12/10-most-reliable-value-stocks-to-buy-2021/