May 15, 2021 - 4:29 am
Value investing is great for investors who love the thrill of the hunt and the feeling of scoring a good deal. Value stocks are those which, based on market demand shifts, are priced lower than they typically would be. To get the most value out of these stocks, investors scoop them up before their prices rebound, profiting in the long term.
Learning how to spot value stocks is part of becoming a great value investor. These stocks are often from companies that are still in great shape outside of the stock market and hold promise for the future. Investors also want to see growing returns. An undervalued stock that continues to increase despite market shifts is a prime target for value stock purchase.
Value stocks for smart investors in 2021
The stock market in 2021 is coming off a year of financial upheaval but steady growth. Investors looking to find high-quality stocks at reduced prices should seek economic staples, particularly those that survived or thrived during the global coronavirus pandemic.
Some of the strongest performers during the pandemic were retail outlets that were able to continue offering necessities in-store or pivot to digital orders and shipments. Yet despite their impressive performance, some of these stocks remain undervalued in the current market.
Large-scale retail businesses
Evaluating large-scale retail businesses may indicate some of the best value stocks for 2021. Investors can feel confident these businesses will weather storms and promise investment growth.
Similarly, healthcare companies have performed well in the face of the pandemic, with room to expand. Those that are currently undervalued in the market are worth a look from investors seeking long-term growth.
A retail mainstay, Walmart maintained steady performance with 79% growth over the last year. This value stock tends to survive serious financial upsets. Walmart’s price-to-earnings ratios are less than both the S&P and industry ratios, at 21.1 to 21.3 and 21.1 to 30.5, respectively.
When considering investing in Walmart as a value stock, it’s important to understand its complete profile. Walmart is not a perfect value stock, but it is a stable one. It can be used as the backbone of a value stock portfolio, but it may not have the same stunning growth that other value stocks often exhibit.
Like Walmart, Kroger is a retail powerhouse whose future feels as assured as any future can. Projections suggest that population growth will encourage Kroger’s continued dominance over the grocery and necessity market.
Kroger performed well during the pandemic in 2020 while many other businesses folded. Kroger’s foray into online grocery shopping, in particular, helped it capitalize on this expanding segment of the market.
It might seem like the little guy can’t compete with titans like Walmart and Kroger, but Sprouts Farmers Market is running its own race. The small grocery chain with 360 stores is looking forward to continued growth following increased profits and locations over the last year.
In the last several months, Sprouts has held steady with a slightly lower price-to-earnings ratio when compared with similar grocery stores — a median of 12.75 compared to 16.07. Purchasing now may provide excellent earnings for investors as the chain continues its slow and steady growth.
4. Johnson & Johnson
Despite recent vaccine snafus, Johnson & Johnson’s long-term prospects in the market are bright. As a company firmly rooted in everyday healthcare needs, Johnson & Johnson has a solid base for the ongoing expansion of its pharmaceutical operation.
Faced with few threats even in times of global financial duress, healthcare giants like Johnson & Johnson should continue doing well. The current price-to-earnings ratio for Johnson & Johnson is lower than it typically would be, prompting optimism that its stable history will push it further in the future.
5. CVS Health
For some time now, CVS Health has been redefining what a pharmacy should be. Long-term, steady growth has facilitated CVS Health’s ongoing physical expansion to nearly 70,000 network pharmacies. Currently, it operates just under 10,000 retail locations that serve as both a pharmacy and corner store in many places.
Finding customers is not a challenge with such a widespread network. CVS Health, like many healthcare companies, also benefits from potential future growth thanks to baby boomers aging into retirement. Serving as a resource for COVID-19 procedures, including testing and vaccines, greatly added to its value over the last year.
Despite its steady value increases, CVS trails the S&P 500 49% to 85%, resulting in its current undervaluation. Sale increases are also likely as the pandemic winds down. Those who buy now are likely to continue seeing strong if not galloping growth over time with CVS Health.
Good to know
The amateur looking to find value stocks should first identify those that are trading in the below-average category of the S&P 500. Then, compare their price-to-earnings value with that of the S&P 500 and similar businesses. This lower valuation should be accompanied by a well-known history of regular and long-term growth.
The worth of value stocks
It can’t be overstated how essential value stock investing is to a strong portfolio for an active investor. Though it can be a case of playing the long game, balancing your investments with some value stocks is a smart choice for longevity in the recovering economy.
Find the best value stocks for 2021 by looking at those companies who performed well during one of the greatest economic tests of modern history — particularly retail and healthcare businesses — yet are trending slightly below average in value.