Growth stocks once again outshone value stocks in 2020, a theme that has played out throughout most of the past decade. However, a resurgence in value stocks since the beginning of November has potentially set the stage for 2021 to be the year of the value investment. Growth stock valuations are historically high, leading some analysts to draw comparisons to the dot-com bubble of the late 1990s. In the early 2000s, financial, energy and real estate value stocks left many high-growth tech stocks in the dust. Here are seven of the best value stocks to buy heading into 2021.
Lincoln National Corp.
Lincoln National (LNC) is a diversified life insurance company. The stock was down about 14% in 2020 even though revenue was up 15.6% and net income was up 347.2% last quarter year over year. Persistently low interest rates are a headwind for life insurers and have negatively impacted investor sentiment, but Lincoln National shares trade at just five times projected 2021 earnings. As the labor markets improve, demand for Lincoln’s retirement products should rebound. The stock’s valuation likely limits its downside in 2021, and any bullish momentum will be supplemented by the stock’s 3.4% dividend.
Altria (MO) is one of the largest tobacco companies in the world and the owner of Philip Morris USA. Investors may be hesitant to invest in a tobacco company, but the tobacco industry has historically been extremely resilient. Altria has been particularly aggressive in diversifying its company. In addition to its legacy cigarette business, Altria has invested in smokeless tobacco products and owns a 10% stake in alcohol giant Anheuser-Busch InBev (BUD) and a 45% stake in cannabis producer Cronos Group (CRON). MO stock also trades at just 9.3 times forward earnings and pays an 8.5% dividend.
Allstate (ALL) is the world’s largest public personal lines insurance company and accounts for roughly 10% of the total personal lines market. Low interest rates are not ideal for insurance stocks, but sharp declines in travel and a shift to remote work have significantly reduced Allstate’s exposure to auto collision liability. Allstate reported 3.9% revenue growth and 26.7% net income growth in the third quarter, but the stock was down about 2.5% overall in 2020. Shares now trade at just 8.6 times forward earnings, and ALL stock pays a 2% dividend.
Travel restrictions, social distancing and economic shutdowns in 2020 have crushed the energy sector, and shares of natural gas pipeline giant Kinder Morgan (KMI) were down about 35% in 2020. Kinder Morgan understandably struggled with declining revenue and earnings in 2020. Many other energy sector stocks have slashed or suspended dividends in 2020. However, Kinder Morgan recently announced a 3% dividend hike for 2021, a clear sign of how well the company has navigated the crisis. KMI stock trades at just 15.3 times forward earnings, and the new dividend represents a sizable 7.8% yield.
Ford Motor Co.
Ford (F) is one of the world’s largest automakers. Tesla (TSLA) and other electric vehicle companies have been among the top performers in the market in 2020. Tesla shares are up more than 700% in the past year and trade at around 170 times projected forward earnings, making Ford shares look like a tremendous value at just 8.4 times forward earnings. Ford recently announced $3.2 billion in EV investments, and the first edition of its EV Mustang Mach-E is already sold out. Last quarter, Ford generated $2.4 billion in net income compared with $331 million for Tesla.
Bristol-Myers Squibb Co.
Bristol-Myers Squibb (BMY) is a biopharmaceutical company that specializes in oncology, immunology and cardiovascular therapeutics. The stock was down about 1% in 2020, but revenue was up 75.4% in the third quarter and net income grew by 35.7% compared with a year ago. Much of that large revenue jump came from Bristol-Myers’ acquisition of Celgene. The debt the company took on to complete the Celgene deal is likely one of the main reasons why BMY stock has underperformed and currently trades at just 8.3 times forward earnings. As Bristol-Myers pays down its debt, expect its stock to rise.
Bank balance sheets got a vote of confidence from the Federal Reserve in December when the Fed cleared banks to resume buyback programs in the first quarter of 2021. Morgan Stanley (MS) wasted little time, authorizing up to $10 billion in buybacks for 2021, about 8.1% of the stock’s current market capitalization. Those buybacks will help boost earnings per share in coming quarters, and Morgan Stanley shares already trade at just 13.2 times projected 2021 EPS. Morgan Stanley reported 16.2% revenue growth and 25% net income growth in the third quarter, and that momentum should continue in 2021.
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