Rising interest rates and the persistent threat of inflation continue to erode investor confidence and profit margins for once-coveted tech names. Considering many of the best growth stocks continue to trade lower, investors may want to look at something that’s been tracking relatively well so far in 2022: value stocks. The Invesco S&P 500 Pure Value ETF (RPV) is up 8% this year. Compare that to the Invesco S&P 500 Pure Growth Fund (RPG), which is down about 16%, and it’s easy to see why it makes sense to increase holding in value names.
Many formerly cheap value stocks increased sharply as investors have flocked out of speculative names. However, there are still bargains to be had if you know where to look. Here are three attractive value stocks to add to your watchlist right now.
The Fed has signaled that it will continue to move aggressively until inflation has shown clear signs of downward momentum – potentially including a 0.50% rate hike at the May and June meeting. One of the single best ways to hedge against rising interest rates is through insurance companies. The reason is that insurance companies invest heavily into fixed-income assets like corporate and government bonds. As interest rates rise, insurers earn a higher yield and profits increase.
After more than a decade of a zero-interest-rate environment, things are finally set to improve for the insurance industry, and American International Group (AIG) is one of the well-positioned companies in the group.
Making the stock even more attractive – it seems like a bargain at current levels compared to peers. AIG is currently trading at less than 6 times forward earnings, cheap compared to top competitor Cigna Corp. (CI), which trades at more than 17 times forward earnings. Further, the company’s price to book ratio of 0.74 is attractive compared to the insurance industry, where the average price to book ratio is more than twice that at 1.65.
The 13 analysts offering a 12-month price forecast for AIG have a median target of $69, representing a 7.3% increase from Friday’s closing price. The stock comes along with a 2% dividend backed by a sustainable 12% payout ratio.
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Next up is a real estate investment that should appeal to readers seeking value and growth and a consistent payout.
A real estate investment trust (REIT) is a company that owns, operates, or finances income-generating real estate. REITs allow investors to buy shares in commercial real estate portfolios, which were previously only available to wealthy individuals and through large financial intermediaries. REITs generate a steady income stream for investors but offer little in the way of capital appreciation.
To qualify for REIT status, a company must primarily own income-generating real estate for the long term and pay a minimum of 90% of taxable income in the form of shareholder dividends each year.
Virginia-based Apple Hospitality REIT, Inc. (APLE) owns and manages a portfolio of upscale hotels in the U.S., including 219 hotels located in 86 markets across 36 states.
Along with a strong recovery in domestic travel last year, APLE’s net income rebounded with gusto from a loss of $173.2 million in 2020 to $18.8 million in 2021. The company reported full-year 2021 revenue of about $934 million, compared to revenue of $602 million in 2020.
Barclays analyst Anthony Powell recently raised the price target on Apple Hospitality from $19 to $21 and maintained an Overweight rating on the shares. The analyst cited the company’s strong operating results, leading sub-sector dividend, and latest acquisition activity for the target upgrade.
APLE garners a Buy rating and a median price target of $19, representing an increase of 15% from Friday’s closing price. The REIT rewards investors with an attractive monthly payout of $0.05 per share, which amounts to a 3.56% yield.
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Mostly everyone is familiar with 3M (MMM). Widely known for its adhesive tape, the industrial conglomerate has a portfolio of over 60,000 products that consumers use every day in hospitals, schools, offices, and homes worldwide.
3M share price has moved considerably over the past year, gyrating from a 52-week high of $208.95 to its 52-week low of $139.74. Thanks to a somber sales forecast and some legal liabilities relating to past manufacturing practices, the stock is trading at just 14 times forward earnings, which is an overreaction according to Morningstar’s Joshua Aguilar, who pegs MMM’s fair value at $192 per share, offering considerable upside from the current price.
The pros on Wall Street say to Hold MMM and give it a median price target of $165, representing an 11% upside. The dividend aristocrat has a decades-long record of upping its payout, which is currently 4%.
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