Markets have once again become volatile. Headlines range from the earnings season to the spread of the delta variant of the novel coronavirus worldwide. As a result, investor nervousness has also increased. Market participants are looking for calmer waters and safer stocks to buy. Therefore, let me introduce seven cheap value stocks to outperform the market in the long run.
The idea of value investing goes back to 1920’s. At the time, Benjamin Graham and David Dodd developed a methodology to “identify and buy securities priced well below their true value.” The target was to increase the margin of safety by investing in a security that is below its intrinsic value, or in other words an undervalued stock.
Identifying a safe value stock requires patience and due diligence. Using several ratios such as price-earnings (P/E), price-book value (P/B), dividend yield, price-sales (P/S) and others could lead you to a value stock. Equities with low P/E and P/B ratios than their peers, and those that pay regular dividends could be considered a value stocks.
As the famed billionaire Warren Buffett said in a letter to his shareholders, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” So, with all of that in mind, here are seven cheap value stocks you might want to check out.
- Cooper Companies (NYSE:COO)
- Invesco S&P SmallCap 600 Pure Value ETF (NYSEARCA:RZV)
- Lennar (NYSE:LEN)
- Morgan Stanley (NYSE:MS)
- Travelers Companies (NYSE:TRV)
- Vanguard Value Index Fund ETF Shares (NYSEARCA:VTV)
- Verizon Communications (NYSE:VZ)
Now, let’s dive in and take a closer look at each one.
Cheap Value Stocks: Cooper Companies (COO)
52-Week Range: $291.20 – $425.56
Our first pick, Cooper Companies is a San Ramon, California-based global medical device firm. Its products are sold in more than 100 countries. The company operates through two segments, namely CooperVision, which offers a broad range of contact lenses and CooperSurgical, which offers products and services focusing on women’s health, fertility and diagnostics.
Cooper released second-quarter results in early June. Revenue grew 37% year-over-year (YOY) to $719.5 million. Net income came in at $117.5 million versus $11.5 million in the prior-year period. Non-GAAP diluted earnings-per-share (EPS) of $3.38 implied an increase of 123% YOY. Cash and equivalents at quarter end stood at $105.9 million, and net debt outstanding was $1.63 billion.
On the results, CEO Al White said, “I’m happy to report that CooperVision and CooperSurgical both posted all-time record quarterly revenues which drove record quarterly earnings. Our businesses have rebounded nicely from Covid lows and we’re poised for success with daily silicone hydrogel lenses and myopia management leading CooperVision, and fertility and PARAGARD® leading CooperSurgical.”
So far this year, COO stock is up slightly over 16%. The company’s forward P/E, P/S and P/B ratios are 29.59, 7.87 and 3.37, respectively. Cooper has been facing headwinds due to pandemic-related disruptions in international trade. Yet, it is likely to rebound rapidly in the post-coronavirus economy. Value investors could consider buying in at the current levels.
Invesco S&P SmallCap 600® Pure Value ETF (RZV)
52-Week Range: $49.13 – $100.10
Dividend Yield: 0.6%
Expense Ratio: 0.35% per year
Our next choice is an exchange-traded fund (ETF), namely the Invesco S&P SmallCap 600 Pure Value ETF. The fund tracks the S&P SmallCap 600 Pure Value Index, and provides exposure to small-capitalization companies showing strong value characteristics based on several criteria such as book value-price ratio, earnings-price ratio and sales-price ratio.
The fund, which started trading in March 2006, has reached a market value of $388 million. As far as sector allocations are concerned, Financials leads the ETF with 19.21%, followed by Consumer Discretionary (18.21%) and Industrials (17.18%).
RZV currently has 166 holdings. The top ten names make up around 17% of net assets. Printing, publishing, packaging, and facility solutions provider Veritiv (NYSE:VRTV), high-BTU bituminous thermal coal producer CONSOL Energy (NYSE:CEIX) and fiber-based pulp and paper products manufacturer Domtar (NYSE:UFS) lead the names in the fund.
Since the beginning of 2021, RZV has returned just under 36% and hit a 52-week high on June 9. The fund offers great potential for long-term capital appreciation and annual dividend growth. Interested investors could consider buying the dips, especially below $85.
Cheap Value Stocks: Lennar (LEN)
52-Week Range: $69.41 – $110.61
Dividend Yield: 0.95%
Miami, Florida-based Lennar is one of our leading homebuilders. It also provides residential and commercial mortgage financing. Following the acquisition of CalAtlantic in 2018, Lennar became the largest homebuilder stateside in terms of consolidated revenues.
According to the Q2 financial results presented on June 16, revenues amounted to $6.4 billion, up 22% (YOY). Net earnings came at $831.4 million and diluted EPS was $2.65, both increased 61% YOY. Homebuilding cash and equivalents stood at $2.6 billion at the end of Q2.
CEO Stuart Miller stated, “With regards to the previously announced potential tax-free spin-off of certain assets, given the strength of the market which has accelerated our earnings and equity growth, we have slowed progress this quarter in order to focus on upsizing the asset base of the businesses we would like to spin-off and are targeting an asset base of $5-$6 billion, compared to $3-$5 billion we discussed last quarter.”
LEN stock is up 39% year-to-date (YTD). The company’s forward P/E, P/S and P/B ratios are 8.61, 1.33 and 1.68, respectively. Low interest rates and shortages in housing stock create tailwinds for home building industry. Therefore, value investors should keep LEN shares on their radar.
Morgan Stanley (MS)
52-Week Range: $45.86 – $97.17
Dividend Yield: 2.96%
Our next value stock comes from the financial sector. New York-based Morgan Stanley is a global financial services firm providing a wide range of investment banking, securities, wealth management and investment management services. Founded in 1935, the company today operates in more than 41 countries.
Morgan Stanley announced Q2 earnings results in mid-July. Net revenues of $14.8 billion meant a growth of 8.5% YOY. Net income was $3.5 billion, up 9.4% YOY. Diluted EPS narrowed 5.6% YOY and came in at $1.85.
CEO James P. Gorman cited, “With our transformed business model providing more stable and durable earnings, we have doubled our dividend and announced a $12 billion buyback as we move to return our excess capital to shareholders. Our global franchise is very well positioned to drive further growth.”
Moreover, forward P/E, P/S and P/B ratios stand at 14.68, 3.25 and 1.79, respectively. So far this year, the shares have returned almost 41% and recently hit the 52-week record high. Along with valuation levels that are not frothy, a consistent dividend payments make MS stock an appealing choice. Interested investors could wait for a potential decline below $90 to find better long-term value.
Cheap Value Stocks: Travelers Companies (TRV)
52-Week Range: $105.67 – $162.71
Dividend Yield: 2.36%
Saint Paul, Minnesota-based Travelers Companies provides property casualty insurance for auto, home and business. The company operates through three segments including Business and International Insurance, Bond & Specialty Insurance and Personal Insurance. Travelers works with around 13,500 independent agents and brokers in the U.S., Canada, the U.K. and Ireland.
Furthermore, Travelers reported Q2 results on July 20. Total revenues came in at $8.7 billion, up 17% YOY. Net income was $934 million, compared to a net loss of $40 million in the prior-year quarter. Core income stood at $879 million, and diluted EPS increased $3.65 YOY to $3.45. A total capital of $625 million was returned to shareholders, including $401 million of share repurchases.
CEO Alan Schnitzer commented, “Our focused innovation agenda has been an important contributor to the growth and profitability we have achieved,…With the momentum we have and the best talent in the industry, we are well positioned to continue to create meaningful shareholder value over time.”
YTD, TRV stock is up just under 7%. Its forward P/E, P/S and P/B ratios are 13.35, 1.12 and 1.27, respectively. Currently the shares are trading at a modestly undervalued price level. That said, value investors should consider buying in TRV stock towards $135 to hold long-term.
Vanguard Value ETF (VTV)
52-Week Range: $100.68 – $142.28
Dividend Yield: 2.15%
Expense Ratio: 0.04% per year
The Vanguard Value ETF tracks the CRSP US Large Cap Value Index and follows a passively managed, full-replication approach. The fund provides exposure primarily to large-cap U.S. value stocks.
VTV started trading in January 2004 and has a net asset of $125.8 billion. In terms of portfolio composition, we see Financials with 21.70%, followed by Healthcare (18.7%), Industrials (13.9%), Consumer Staples (10%), and Consumer Discretionary (6.5%).
The fund currently holds 350 stocks and the top ten holdings weigh 20.5% of total net assets. Leading holdings include Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B), financial giant JPMorgan Chase (NYSE:JPM) and healthcare products manufacturer Johnson & Johnson (NYSE:JNJ). VTV offers a good option for investors seeking a diversified portfolio of large- and mid-cap value stocks.
Cheap Value Stocks: Verizon Communications (VZ)
52-Week Range: $53.83 – $61.95
Dividend Yield: 4.5%
My final cheap value stock choice is New York City-based Verizon, the leading telecommunication and media group. It operates through three segments including Consumer, Business and Media.
On July 21, Verizon released Q2 financial results. Total consolidated operating revenues were $33.8 billion, up 10.9% YOY. Net income of $5.95 billion implied a growth of 22.9%. Adjusted EPS stood at $1.37, increasing 16.1%. Cash flow from operations totaled $20.4 billion, a decrease from $23.6 billion YOY. Cash and equivalents narrowed $17.5 billion YOY to $4.6 billion.
On the results, CEO Hans Vestberg pointed out, “We are excited about our momentum leading into the second half of the year. We are on track to close both the Tracfone and Verizon Media transactions, and will continue to bring value and choice to our customers.”
In early May, Verizon announced the sales of its media group including AOL and Yahoo, to the private equity firm Apollo Global Management (NYSE:APO). This news confirmed the company’s increasing focus on the Internet and digital media.
Overall, VZ stock’s share price is down 5.2% YTD. Its forward P/E, P/S and P/B ratios are 10.55, 1.74 and 3.13, respectively. Current metrics imply the cheap valuation of Verizon. Thus, passive income and value investors should consider investing in around these levels.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.