OK, it hasn't been quite that long. Still, for years, even the best value stocks have taken a back seat to growth. The Wilshire US Large-Cap Growth Index, for instance, has produced a total return (price plus dividends) of 250.6% between the start of 2007 and
Growth stocks appear to have gotten way ahead of themselves, which at least sets up the possibility that value stocks will return to favor. But there are no guarantees.
"Growth's outperformance will end when it finally crumbles under its own weight, as it finally did in 2000, but I have no idea if it happens next week or in five years,"
Market timing is a fool's errand, however. Instead, you can do well by simply targeting high-quality value stocks now ... which includes determining just what real "value" is. For instance, is a stock that trades at less than five times earnings a bargain if it's buried in debt? That seems doubtful, especially in this uncharted economic territory brought about by COVID-19.
Here are 10 of the best value stocks to buy right now. For the value component, we're using cash rather than profits, which can be skewed by various accounting adjustments. Also, in this time of uncertainty, it's important for portfolio picks to have healthy balance sheets. So each of these stocks boasts cash positions that are greater than their outstanding debt.
SVB Financial
Market value: $8.9 billion
Net cash: $5.8 billion
Price-to-cash flow: 9.1
Bank stocks aren't having much luck during the pandemic, and their shareholders know it. Year-to-date, the
Out in
Nonetheless, SIVB could be one of the best value stocks in the industry right now.
In the company's Q1 2020 letter to stakeholders, CEO
"In good markets and bad, we have maintained the strong underwriting standards that have made us so successful over time. In past cycles, we have seen elevated early-stage losses as well as episodic losses in other parts of the portfolio. These have been followed by a rapid return to more normal credit patterns," Becker said. "Our loan portfolio is stronger and more diversified today than in the last crisis."
Meanwhile, SIVB's price-to-cash flow of 9.1 is lower than it has been for most of the past decade.
Medpace Holdings
Market value: $2.9 billion
Net cash: $80.0 million
P/CF: 14.3
When you want to develop a new drug or medical device,
Like infrastructure contractors, you can evaluate
During the pandemic, we've all seen how important companies like
Market value: $589.2 billion
Net cash: $50.0 billion
P/CF: 15.7
It might seem odd to have
Everything's relative.
"Outlook is really uncertain. We have a really cautious outlook on how things are going to develop,"
Nonetheless, FB stock should be in fine shape.
Arista Networks
Market value: $15.6 billion
Net cash: $2.6 billion
P/CF: 16.8
The company is looking to grab a significant piece of the cloud networking market, which is estimated to be $30 billion by 2024, by using its Extensible Operating System (EOS) to provide a programmable, highly modular, cloud networking platform.
Over the past five years, Arista's revenues have grown 186%, from $837.6 million in 2014 to $2.4 billion in 2019. Operating profits have exploded by 440% over the same period to $805.8 million.
Arista's first-quarter results were better than expected. Revenues of $523 million were $10 million higher than consensus estimates, while adjusted earnings of $2.02 per share beat the Street by 23 cents. Both figures were lower year-over-year, however, and Arista's Q2 revenue estimates were shy of the analyst mark.
However, Arista remains 1% higher year-to-date versus a 12% decline for the S&P 500. While ANET's operations clearly aren't invulnerable to COVID-19, it's still a logical play on the long-term growth of cloud computing. And while it's not quite as cheap as it was in mid-March, it's still trading at a P/CF that's half its five-year average. At current prices, Arista is an intriguing value buy.
Interactive Brokers
Market value: $15.7 billion
Net cash: $3.1 billion
P/CF: 2.2
If you believe company founders are generally better stewards of capital, you might like IBKR, given that Peterffy controls 81% of the company's votes. But the company has had a rocky time of late. As of this time two years ago, IBKR had wildly outperformed the S&P 500 on a total-return basis, 711% to 390%; however, shares have been halved since then, thanks to aggressive competition, lower interest rates and Peterffy's relinquishing of the CEO position.
But things might be perking up for
On a pure P/CF basis,
Take-Two Interactive
Market value: $14.9 billion
Net cash: $1.8 billion
P/CF: 16.9
Video game companies such as Take-Two Interactive (TTWO, $131.53) have been among the most popular "social distancing stocks."
"People are at home, they have nothing to do, they are not commuting,"
In February, when the company announced earnings for its fiscal third quarter ended December, CEO
"Take-Two's development pipeline over the coming years is the largest and most diverse in our history," Zelnick said. "Take-Two is exceedingly well positioned to capitalize on the many positive trends in our industry and to generate growth and margin expansion over the long-term."
TTWO finished the third quarter with net cash of $1.8 billion. It expects to release a number of video game titles in fiscal 2021 that will be available on several platforms.
The company isn't just benefiting from people playing more video games - but from an increased interest in watching them, too.
One problem that could slow 2020's surge in gaming is if Microsoft (MSFT) and Sony (SNE) face delays in getting their next-generation gaming consoles launched in time for the holiday season.
Nonetheless,
ITT
Market value: $4.1 billion
Net cash: $360.0 million
P/CF: 11.4
The original ITT (ITT, $47.38) was called International Telephone & Telegraph. It got its start in 1920 and ultimately became a provider of telephone switching equipment and telecom services. In the 1960s, it went on an acquisition binge, buying more than 350 companies, including
Fast forward to 2011, when ITT split itself into three businesses:
Today, ITT has three operating segments: Industrial Processes, Motion Technologies, and Connect and Control Technologies.
ITT's revenues fell by 4.6% to $663.3 million during the first quarter, and profits declined by 12.1% to 80 cents per share. Nonetheless, both results exceeded analyst expectations. Meanwhile, free cash flow in the trailing 12 months increased by 3.3% to $284.7 million; free cash flow margins narrowly improved by 1 basis point to 10.1%.
ITT is one of the most battered value stocks on this list, at 35.6% losses year-to-date. But four of the five analysts who have sounded off on shares over the past month call the stock a Buy, with a $61.40 average price target that implies nearly 30% upside. Meanwhile, its P/CF ratio of 11.2 hasn't been this low since 2012, and its free cash flow yield of 7.7% is on the verge of value territory.
National Beverage
Market value: $2.3 billion
Net cash: $210.0 million
P/CF: 14.8
If you've been following the LaCroix sparkling water story, you're probably aware the fizz has gone out of National Beverage's (FIZZ, $49.72) stock in recent years. If you invested five years ago, you have an annual return of 20.6%. If you invested three years ago, that turns into a roughly 14% annual loss.
The cause of the stock's retreat was a combination of increased competition in the sparkling water market from brands such as PepsiCo's (PEP) Bubly as well as a number of public relations nightmares regarding CEO
But sometimes, buying a beaten-down stock during tumultuous times can result in outsized, long-term gains.
National Beverage reported better-than-expected third-quarter results in early March. Sales grew 1% year-over-year to $222.8 million, its first quarter with positive growth in quite awhile. Interestingly, its Shasta and Faygo carbonated soft drink brands had volume growth of 3.2%, more than double the growth from its Power+ brands, which includes LaCroix. Earnings, meanwhile, improved by 7.1% to $26.6 million; on a per-share basis, profits of 57 cents beat the Street by 7 cents per share.
The company's 14.8 P/CF is its lowest multiple since 2010, warranting it space on this list of the market's best value stocks.
SEI Investments
Market value: $7.5 billion
Net cash: $730.0 million
P/CF: 13.3
If you work in the investment management business, you're likely familiar with
SEI manages or administers more than $920 billion in hedge funds, private equity, mutual funds, and pooled or separately managed assets. It hasn't done particularly well in 2020, off almost 23% year-to-date. Nor has it done particularly well over the past decade. Its annualized 10-year total return is 9.6%, 210 basis points less than the Morningstar US Market Index over the same period. (A basis point is one one-hundredth of a percentage point.)
The company understandably struggled in the first quarter. The market's sharp correction sent assets under management 14.6% lower year-over-year to $283.4 billion. Assets under management, administration and advisement fell by 2.6%. That resulted in revenues of $414.8 million and profits of 72 cents per share - both below analyst estimates.
So, why buy SEI?
SEIC shares are cheaper by almost every valuation metric, including price-to-cash flow, than it has been over the past five years. Further, it has a very high return on invested capital of 28%. It's also flush with cash and has a sound balance sheet that should get it through this downturn. If it recovers like analysts expect it to in 2021, shares should follow suit.
UniFirst
Market value: $2.9 billion
Net cash: $350.0 million
P/CF: 10.3
Five years ago, if you invested in
Value investing often means swimming upstream, going against the crowd. Given its longer-term underperformance and a 22.6% decline year-to-date,
In the first quarter of 2020,
CEO
That said,
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Will Ashworth is a Contributing Writer for Kiplinger.