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The 10 Best Value Stocks of March 2024
Company (ticker) | PEG Ratio |
---|---|
Graphic Packaging Holdings (GPK) | 0.4 |
Lear (LEA) | 0.4 |
LKQ (LKQ) | 0.4 |
Webster Financial (WBS) | 0.4 |
ACM Research (ACMR) | 0.6 |
Bank OZK (OZK) | 0.6 |
T-Mobile US (TMUS) | 0.7 |
Autoliv (ALV) | 0.8 |
Lamb Weston Holdings (LW) | 1.0 |
Darling Ingredients (DAR) | 1.2 |
Graphic Packaging Holdings (GPK)
Forward PEG Ratio
0.4
Forward P/E Ratio
8.9
5-Year Avg. Annual EPS Forecast
25.0%
0.4
8.9
25.0%
Why We Picked It
Graphic Packaging operates paper mills and sells packing products. The stock has been in a steady uptrend since 2020, and it continues to provide great value with a low forward PEG and P/E. This is due to steady earnings growth, including 22.3% expected EPS growth in 2023 and 0.7% growth in 2024. Analysts also expect hefty EPS growth per year over the next five years.
The stock has a price/book ratio of 2.7 and a “B” grade for financial health from Morningstar. The company also pays a dividend, currently yielding 1.8%
Lear (LEA)
Forward PEG Ratio
0.4
Forward P/E Ratio
7.7
5-Year Avg. Annual EPS Forecast
27.1%
0.4
7.7
27.1%
Why We Picked It
Lear manufactures seats for cars. It also builds automotive electrical systems and components.
LEA provides an excellent combination of both growth and value. Analysts expect 36.1% EPS growth in 2023 and 36.5% growth in 2024. That growth is expected to continue over the next several years.
The stock also has a relatively low price/book of 1.5 and a “B” financial health rating from Morningstar. The stock has been moving sideways for the last year so investors are cheering for an upside breakout. The company has been buying back shares, and the dividend yield is currently 2.4%.
LKQ (LKQ)
Forward PEG Ratio
Forward P/E Ratio
11.8
5-Year Avg. Annual EPS Forecast
33.5%
0.4
11.8
33.5%
Why We Picked It
LKQ operates auto salvage—or pick-a-part—yards. It also distributes new auto parts.
Earnings have been on the rise for a number of years and analysts expect that to continue. Expected EPS growth is slightly sluggish in the near-term at 3.4% in 2023 and 10.3% next year, but it is expected to increase considerably over the next five years.
LKQ has a price/book ratio of 2.2 and a “B” financial health rating from Morningstar. The buyback yield is attractive at 4.0%, and the dividend yield is 2.3%.
Webster Financial (WBS)
Forward PEG Ratio
0.4
Forward P/E Ratio
7.7
5-Year Avg. Annual EPS Forecast
19.4%
0.4
7.7
19.4%
Why We Picked It
Webster is a financial service provider of loans, banking services, investment advisory and wealth management.
WBS has the second lowest forward P/E ratio on this list. Banks, however, tend to have lower P/E values than other sectors. Analysts expect significant yearly EPS growth over the next five years, but in the short-term growth prospects are more conservative at 5.0% growth in 2023 and 1.7% growth in 2024.
The stock has the lowest price/book ratio on this list at 0.8, and it has a “C” financial health rating from Morningstar. Webster Financial also has the highest dividend yield on this list at 4.2%.
ACM Research (ACMR)
Forward PEG Ratio
0.6
Forward P/E Ratio
16.5
5-Year Avg. Annual EPS Forecast
42.7%
0.6
16.5
42.7%
Why We Picked It
ACM Research sells cleaning equipment to the semiconductor industry. The company’s products are used to remove impurities from microchips.
ACMR has delivered growing earnings since 2021. Analysts expect the growth to continue over the next five years, including 53.0% EPS growth in 2023 and 6.3% growth next year.
The stock also has a price-to-book ratio of 1.5 and a “C” financial health grade from Morningstar.
Bank OZK (OZK)
Forward PEG Ratio
Forward P/E Ratio
7.3
5-Year Avg. Annual EPS Forecast
12.0%
0.6
7.3
12.0%
Why We Picked It
Bank OZK is a holding company that operates the Bank of the Ozarks. It provides traditional banking services, including mortgages.
OZK has the lowest forward P/E on this list, but it also has the lowest five year EPS growth estimate. Analysts are forecasting 25.6% EPS growth in 2023 but only 1.1% growth in 2024.
The price/book ratio is 0.9, which is one of the lowest readings on this list. OZK has a “C” financial health grade from Morningstar.
T-Mobile US (TMUS)
Forward PEG Ratio
0.7
Forward P/E Ratio
14.7
5-Year Avg. Annual EPS Forecast
26.9%
0.7
14.7
26.9%
Why We Picked It
T-Mobile is a nationwide cell phone service provider, servicing about one quarter of the U.S. wireless market.
The company has been growing earnings and is expected to continue doing so, including 254.9% EPS growth in 2023 and 35.2% growth next year. This gives the stock a low forward PEG ratio.
The stock has a price/book ratio of 2.4, which is slightly higher than some of the other stocks on this list, but it has a “B” financial health rating from Morningstar, and that can be attractive for investors looking to invest in a quality company. TMUS has also been buying back shares, with a buyback yield of 7.0%. A solid buyback ratio helps bolster shareholder value over the long run.
Autoliv (ALV)
Forward PEG Ratio
0.8
Forward P/E Ratio
9.9
5-Year Avg. Annual EPS Forecast
17.2%
0.8
9.9
17.2%
Why We Picked It
Autoliv makes safety products and systems—including seat belts and air bags—for automobiles.
The stock has been moving higher in 2023, but it is still presenting a good value as its earnings are expected to increase in the coming years. Analysts are calling for 56.4% EPS growth in 2023 and 40.6% growth in 2024.
The company has been buying shares and offers a 2.9% dividend yield. At 3.1, it has one of the highest price/book ratios on this list, but ALV remains highly competitive in terms of its other value metrics. It even has a “B” financial health rating from Morningstar.
Lamb Weston Holdings (LW)
Forward PEG Ratio
1.0
Forward P/E Ratio
15.8
5-Year Avg. Annual EPS Forecast
16.8%
1.0
15.8
16.8%
Why We Picked It
Lamb Weston sells frozen potatoes, such as french fries, mashed potatoes, tater tots and hash browns.
The company offers investors an attractive combination of value and growth. It has one of the highest forward P/E ratios on this list, but it also has one of the highest growth rates on the list as well. Analysts expect a 14.3% EPS increase in 2023 and 11.6% next year.
The price/book ratio is high for a value stock at 9.3, but LW is the only stock included here with an “A” financial health score rating from Morningstar. The company buys back shares, and it has a dividend yield of 1.3%.
Darling Ingredients (DAR)
Forward PEG Ratio
1.2
Forward P/E Ratio
9.5
5-Year Avg. Annual EPS Forecast
10.0%
1.2
9.5
10.0%
Why We Picked It
The PEG ratio is a key metric that divides a stock’s forward price-to-earnings ratio by the earnings growth rate over the next five years. It accounts for both the current price and long-term growth. A PEG ratio under 1.0 is generally considered positive, and Darling Ingredients has the lowest forward PEG ratio on this list.
It’s not uncommon for a company to be classified as both a growth stock and a value stock. And that’s true for DAR, which has delivered growing earnings since 2020. Analysts expect the growth to continue over the next five years, including 22% EPS growth in 2023 and 11.3% growth in 2024.
The stock also has a price-to-book ratio of 1.8. A P/B ratio close to one suggests the stock is undervalued relative to its net assets. DAR has a “C” financial health grade from Morningstar. That’s fine, but it’s more speculative than an “A” or “B” Morningstar rating.
*All data is sourced fromTradeThatSwing, current as of March 5, 2024.
Methodology
This curated list of best value stocks is based on stocks that are trading at an attractive valuation with respect to the company’s growth potential.
The stocks on the list must have at least a $500 million market capitalization and trade at least 500,000 shares per day. In addition, each stock adheres to the following criteria:
- Low forward P/E. Only stocks with a forward P/E under 18 were considered for this list.
- Attractive valuation based on PEG. PEG is a ratio that looks at price to earnings as well as growth. Only stocks with a forward PEG of 1.2 or less were considered. A forward PEG of 1.0 or below is generally considered a good value.
- Earnings growth, both historical and future. All the companies on this list grew earnings by at least 14% on average over the last three years, and analysts expect earnings to increase by at least 8% per year over the next five years. The company must also have had positive earnings for the last four years.
- Financially healthy. All stocks on this list have a financial health grade of “C” or higher (“A”or “B”) from Morningstar.
- Not diluting shareholders. All the companies on this list kept shares outstanding the same or reduced them. Companies that issued new shares are excluded, as that dilutes existing shareholders.
These initial metrics produced a list of 71 stocks. That list was then sorted by additional metrics such as forward PEG ratio to assess which stocks offered the best value. The 10 stocks on this list were manually selected based on steadily rising earnings and an attractive valuation.
What Is Value Investing?
Value investing is a strategy that involves selecting stocks based on perceived value in their underlying businesses. Value investors typically determine the perceived value per share based on fundamental metrics such as the price-to-book ratio, price-to-earnings ratio, price-to-sales ratio and the debt-to-equity ratio.
Value investors attempt to identify stocks that are trading below their intrinsic value and buy them, hoping that the market will eventually value them appropriately. Value investors are often contrarian investors, buying stocks when the market is down and selling when the market is up.
Value investors frequently ignore short-term market trends and focus on buying stocks of high-quality companies that have the potential to generate significant returns over the long term. Famous value investors include Berkshire Hathaway CEO Warren Buffett, influential investor and author of “The Intelligent Investor” Benjamin Graham and billionaire hedge fund manager Seth Klarman.
What Are Value Stocks?
A value stock is a stock that an investor or analysts believes is underpriced based on the business attributes of the underlying company.
Value investors look for bargain prices on value stocks just like bargain shoppers look to hunt for deals at the mall or on Amazon (AMZN) when a sales event is going on.
Because value stocks are typically cheap, they are considered relatively low-risk investments. Unfortunately, many cheap stocks are cheap for good reason, and a low P/E ratio or P/S ratio does not necessarily make a stock an attractive value investing opportunity.
Companies with slowing or even negative revenue growth, shrinking margins, high debt levels or companies operating in markets that are in secular decline may often seem like value stocks at first glance. Stocks that are cheap for good reason are called value traps because they can sometimes trap value investors into a bad investment.
Value investing is typically considered a long-term investing strategy. Just because a stock is presently undervalued doesn’t mean the market will correct its price to a more appropriate level within months or even years.
Value vs. Growth Stocks
Value stocks and growth stocks alternate in popularity among investors. While value stocks outperformed growth stocks since 2021, growth stocks took the lead in 2023.
Value stocks are companies that investors believe are underpriced based on the performance of their underlying businesses. Growth stocks are stocks of companies that are generating above-average growth in sales or profits, and have the potential to outperform over time as their businesses expand.
Value stocks are considered to be attractively priced based on their current business metrics. Growth stocks may appear overpriced based on their current businesses, but are expected to grow into and even exceed their current valuations in the future.
Value stocks typically have attractive fundamental valuation metrics, such as low P/E ratios and low P/S ratios. Growth stocks often have relatively high P/E and P/S ratios, but they typically generate consistent annual revenue growth at least in the double-digit percentage range.
Value stocks are typically predictably profitable companies that often pay attractive dividend yields. Growth stocks are often not profitable and do not pay dividends.
Value stocks are generally considered low-risk, dependable investments with limited near-term upside potential. Growth stocks are usually considered more volatile, higher-risk stocks that have potential for significant near-term upside.
Watch Out for Value Traps
One of the biggest keys to value investing is avoiding value traps, stocks that appear to be attractively valued but are inexpensive for a good reason.
Value traps often have attractive fundamental metrics, such as low price-to-earnings or price-to-book ratios. However, value traps typically have structurally challenged businesses that can lead to the deterioration of these value metrics over time. For example, value traps may be losing market share to competitors or suffering from secular sales declines in a shrinking industry.
To avoid value traps, investors should fully understand a company’s business. That means conducting comprehensive due diligence until you are confident in the full picture of a company’s outlook before making a sizable long-term investment.
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Value Stock FAQs
Why invest in value stocks?
Value stocks are relatively low-risk investments with strong underlying businesses and cheap share prices. Some of the most successful investors of all time, including Warren Buffett and Benjamin Graham, have been value stock investors.
How do you find value stocks?
To find value stocks, investors can screen for fundamental value indicators, such as a low P/E ratio, a low P/S ratio and a low debt-to-equity ratio. Investors can also watch for quarterly 13F filings by Warren Buffett or other high-profile value investors to see which stocks they have been buying.
How do value stocks perform when interest rates rise?
Value stocks tend to outperform growth stocks when interest rates rise because value stocks are considered relatively low-risk investments and safe havens during difficult macroeconomic periods. In addition, many growth stocks rely on debt to fund their growth, and that debt can become much more expensive or difficult to access when interest rates are high.
What is a value trap?
A value trap is a stock that superficially appears to be a value stock but has deeper underlying problems that may cause the stock to underperform. For example, a drug company stock may appear to trade at an attractively low PE ratio and P/S ratio, but it may be a value trap if the patent exclusivity period of its leading drug is soon expiring.
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