Value stocks are ones of blue-chip companies that tend to trade at lower prices relative to their fundamentals, such as earnings and sales. They also tend to perform well in good times and bad, and offer consistent returns regardless of what is happening with the economy at a particular time.
Value stocks have made a big comeback this year as investors rotate out of technology and other growth securities amid heightened fears of inflation and higher interest rates. This has been positive for a number of stalwart value stocks that have gotten a lift from the sector rotation.
In fact, Jonathan Simon, portfolio manager of the JPMorgan American Investment Trust, recently advised clients to “continue to focus on the long term and avoid becoming distracted by short-term noise. In our view, value stocks have room to run, but it pays to be selective and to do your homework.”
We’ve done some of that homework for you. In this article, we look at the four best value stocks to buy now for investors who have a long-term time horizon.
Best Value Stocks: Berkshire Hathaway (BRK.B)
Warren Buffett’s holding company, Berkshire Hathaway, is having a moment. After lagging the return of the S&P 500 index and the technology heavy Nasdaq Composite index for the past few years, BRK.B. stock is once again outperforming.
Year-to-date the stock us up 22% and is now on the verge of breaking through the $300 a share threshold. The company’s Class A stock (NYSE:BRK.A), which has never split, is now trading at nearly $425,000 per share, a level that is problematic for the Nasdaq exchange’s computer system.
The Nasdaq computers are only programmed to handle stocks with a maximum value of $429,496.730. Anything above $429,500 and the computers can’t track it. Nasdaq has announced that it’s upgrading its technology to handle BRK.A stock going forward. The company’s share price, which had been steadily rising this year, got an extra push coming out of Berkshire Hathaway’s annual shareholder meeting, where Buffett’s long-rumoured successor was finally confirmed.
The appreciation of BRK.B stock as value securities come back into vogue with investors has to feel pretty good to Warren Buffett, who has been criticized in recent years for losing his touch.
CVS Health (CVS)
Covid-19 vaccinations have been very good to retail pharmacy chain CVS Health. The company’s stock has rallied 27% so far this year as people visit its nearly 10,000 store locations to get vaccinated and as the economy reopens and people return to shopping in-person.
CVS stock is now trading at $83.38 a share and has more upside potential, if analysts are to be believed. The median price target on the stock is $92 and the high price target is $107, suggesting between 9% and 27% more room to grow from here.
CVS Health’s potential was underlined recently when the company reported better-than-expected earnings. For the first quarter, CVS announced revenue of $69.1 billion, above analysts’ expectations of $68.39 billion. Net income came in at $2.22 billion, or $1.68 a share, up from $2.01 billion, or $1.53 per share, a year earlier. The company also raised its forward guidance for the full year, saying it now expects earnings will range between $6.24 and $6.36 per share. CVS stock is likely to continue strengthening as this year progresses.
Goldman Sachs (GS)
Investment bank Goldman Sachs seemingly can’t lose. The New York-based investment firm makes money in all types of economic conditions. And its stock continues to reach fresh highs this year, up nearly 40% since the first trading day in January at $368.68.
Since bottoming in March 2020 when the pandemic hit global markets, GS stock has risen an impressive 167%, and it hasn’t suffered the pullback seen in big technology names or stocks that benefitted while consumers were confined to their homes.
True to form, Goldman Sachs most recent earnings results were at record levels. The company obliterated analysts’ expectations with record first-quarter net profits and revenues that were due to the company’s investment banking and trading businesses going gangbusters.
Quarterly revenue of $17.7 billion crushed the $12.6 billion that analysts had forecast, while the bank’s per-share earnings of $18.60 easily blew past the $10.22 estimate that analysts expected. Overall, the results represented growth of nearly 500% (498% to be precise) from a year earlier.
As the banking sector benefits from enhanced consumer spending, and with potentially higher interest rates on the horizon, investors can expect GS stock to keep outperforming.
The current level of Nike stock offers an attractive entry point for investors. The Beaverton, Oregon-based sneaker and apparel company has seen its share price pullback about 9.8% since reaching a 52-week high of $147.95 in mid-March.
However, NKE stock appears to have found support at $135 a share and and it likely won’t be long before the next leg up. Analysts certainly forecast that Nike’s share price will move higher from here, with a median price target of $166 and a high estimate of $189. The median target represents a nearly 25% increase from the current share price.
Nike has experienced a few hiccups this year, including a boycott of its products in parts of China and some supply chain problems. However, these are minor issues in the grand scheme of things and will not come close to dethroning Nike as the undisputed heavy weight champion when it comes to sales of sneakers and athletic clothing.
Nike has only been fortifying its market-leading position during the pandemic, enhancing its digital presence and online sales. The company has set itself the goal of growing its digital sales channel from 35% to 50% of total sales. Would anyone bet against them?
On the date of publication, Joel Baglole held a long position in BRK.B.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.