Rising interest rates and persistent 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: value stocks. The Invesco S&P 500 Pure Value ETF (RPV) is up 2.5% over the past year. Compare that to the Invesco S&P 500 Pure Growth Fund (RPG), which is down about 8%, 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. 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 grow.
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 $70.50, representing a 19% increase from Friday’s closing price. The stock comes along with a 2% dividend backed by a sustainable 12% payout ratio.
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 $161, representing a — upside. The dividend aristocrat has a decades-long record of upping its payout, currently 10%.
Trusted neighborhood pharmacy Walgreens Boots Alliance (WBA) has always been a popular place for consumers, creating the perfect conditions for remarkable stability throughout the years both in terms of margins and revenue.
Despite beating expectations for earnings and revenue during its fiscal Q2 call last month, the stock is down on concerns around slowing pandemic demand and vaccination foot traffic. WBA’s share price today is just a stone’s throw away from its 52-week low of $42.90. However, the fundamentals remain solid, making it hard for long-term-minded investors to see this as anything less than an opportune bargain.
There is no doubt that the company has benefitted from the 63 million COVID-19 vaccines administered and concerns are legitimate that revenue will suffer as a result of the diminishing need for vaccines. The company said in a news release it issued 11.8 million vaccines in the second quarter, down from the 15.6 million in the previous period. With Walgreen’s share price down nearly 20% over the past year (underperforming the S&P 500, which is down 4.5% in the same period), those headwinds are arguably factored in.
The company’s $5.2 billion investment in primary-care business VillageMD last year set the stage for the launch of doctor’s offices at hundreds of Walgreens locations across the country. While management cautioned that it could take two years for the partnership to scale to “a reasonable level of operations” for patient investors, the collaboration will likely provide solid growth opportunities for the business. Walgreens management sees 1,000 co-located clinics across more than 30 markets by 2027. On a forward price-to-earnings basis, WBA is cheap compared to its top competitor CVS, which also administers vaccines. CVS currently trades at nearly 17 times forward earnings while WBA trades at less than 6 times earnings. WBA also boasts an impressive 4.4% dividend yield, whereas CVS has a yield of 2%.
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