The 2010s were dominated by growth stocks, and when the year 2020 rolled around, many investors felt that it was time for value stocks to take the lead.
Theoretically, a bear market would be the perfect time for value stocks to outperform growth, but year-to-date, many value names have underperformed their growth-minded peers; cheaply priced energy companies, in particular, continued getting cheaper as oil prices fell, and every sector has been hit by the pandemic.
That said, for the prudent, patient investor, a number of solid value names look quite cheap at today's low prices.
Here are seven of the best value stocks to buy in 2020, in the wake of COVID-19's game-changing impact.
Albemarle is a specialty chemical company that is one of the world’s largest and lowest-cost lithium producers. Even before the pandemic sell-off, Morningstar analyst Seth Goldstein was applauding management for shifting gears to focus on cost reduction and capital discipline. Lithium already accounts for roughly half of Albemarle’s profits, and the company plans to expand its production capacity from about 65,000 metric tons as of 2018 to 155,000 metric tons by 2022. Although Albemarle's exposure to areas like electric vehicles and energy storage has contributed to shares falling about 25% year-to-date, these are still desirable end markets for the longer term. An $80 price target – down from $120 earlier this year – still implies extreme upside from current levels. On top of that, ALB raised its dividend by 5% in early March, its 16th straight year of rising payouts.
ViacomCBS began trading in December following the completion of the media mega-merger between Viacom and CBS. Morningstar analyst Neil Macker said the new company would face stiff competition, but its valuable portfolio of sports rights, popular programming and cable networks would make the company an attractive investment. As recently as late December, Morningstar had a "buy" rating and $77 fair value estimate for VIAC stock. After a horrendous first quarter characterized by pandemic woes, those estimates look a bit optimistic. Some of its best assets like Paramount Pictures and CBS' live sports networking have cratered in value overnight as the shutdown decimates the economy. That said, at current levels, VIAC stock is hard to ignore: Shares trade for only about two times forward earnings and offer better than a 7% dividend.
British American Tobacco
British American Tobacco, one of the world's largest tobacco companies – with a market capitalization of more than $80 billion – not only looks like a cheap value stock to buy right now, but it's also extremely safe. Occasionally, you'll run across a cheap stock that looks too good to pass up, buy it, and then shares never stop getting cheaper. BTI, like the rest of the market, has taken a beating in the stock market sell-off, but it's got one of the most loyal customer bases imaginable. Brands like Camel, Newport, Pall Mall and Kool, among many others, all have customers with an acquired taste for those brands – and that taste doesn't disappear, even in a downturn. BTI currently boasts a 7.4% dividend to boot.
CVS Health Corp.
Unlike British American Tobacco, CVS is actually an extremely essential part of the U.S. economy in the era of a health crisis. Not only will people need to keep getting their prescriptions throughout this period of social isolation and sheltering in place, but when a suitable COVID-19 vaccine is developed, CVS Minute Clinic locations will serve a vital role in helping build America's herd immunity. One similarity with BTI is that CVS investors can rest assured this company will never go the way of the dodo bird: That's one of the many perks of CVS' duopolistic dynamic with Walgreens Boots Alliance (WBA). CVS shares currently trade for less than eight times forward earnings and offer a 3.5% dividend.
Next up among the best value stocks to buy for 2020 is AutoZone. Uniquely built for hard times like these, auto parts retailers will almost certainly see steady demand as a result of the economic fallout from the pandemic. The prospect for new car sales is essentially dead as of spring 2020, and cost-conscious consumers will be forced to adopt a more do-it-yourself lifestyle of the sort AutoZone caters to. It's certainly the case that stay-at-home orders and travel restrictions will reduce wear and tear on old cars, but that short-term pain seems unlikely to match the years of increased demand in auto parts as consumers delay large discretionary purchases indefinitely. AZO has a long track record of great execution, along with a valuable and well-respected brand. AZO trades for about 11 times forward earnings.
Noticing a trend in the best value stocks for 2020? Many of them offer goods or services that are either essential or bound to be in steady demand indefinitely. Telecom giant Verizon is the former. Cellular service, internet access and data have all been utilities for all intents and purposes for some time. With stay-at-home orders in most states forcing all but essential workers to stay cooped up at home, internet connection is more important than ever. While other companies are forced to halt operations, the cellphone, internet and cable bills still come every month. Despite this reassuring fact, Verizon shares are still down marginally year-to-date. A 4.4% dividend and a price-earnings ratio below 12 underscore Verizon's value.
Last but not least is Alexion Pharmaceuticals, a Boston-based biotechnology company. Alexion has several things going for it: It focuses on so-called "orphan drugs" treating rare diseases, making its treatments both extremely expensive and vital for niche populations. Second, ALXN thinks its blockbuster drug Soliris, currently approved to treat rare chronic blood disease issues, could be useful in addressing COVID-19. The company is in talks with the U.S. Food and Drug Administration about ways to proceed. The stock also has the second-lowest P/E ratio among any S&P 500 Index (.SPX) health care stock at just 8.4, and the company is flush with cash. That said, there is a risk that's contributing to ALXN's extreme value: Amgen (AMGN) has challenged the patent on Soliris, which Alexion will have to prove is a result of its intellectual property. If it does, the patent won't expire until 2027.