The 16 best value stocks for the rest of 2021

Value stocks have been en vogue this year. These names could see upside as the U.S. economy continues to recover from the COVID-19 pandemic.

  • By Lisa Springer,
  • Kiplinger
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Value stocks are not only staging a comeback in 2021, but also setting up to deliver higher returns even further down the road.

A revival for value stocks is due at least in part to the recovering U.S. economy. Many value stocks come from cyclical industries like energy, manufacturing and utilities that fared poorly during the COVID-related shutdown.

As demand for these services rise, company cash flows expand, which in turn leads to increased capital investment, accelerating growth and a higher share price. The Biden administration's $2.2 trillion infrastructure spending plan could also be a boon for value investors, as most infrastructure stocks fall into this category.

Although tech stocks like Amazon.com (AMZN) and Netflix (NFLX) have garnered strong media attention and outperformed other sectors over the past decade, a surprising fact is that value stocks have delivered much greater returns over the long haul. An analysis by Anchor Capital Advisors shows that since 1927, a dollar invested in value stocks would have grown nearly 18 times faster than the same dollar invested in growth.

The downside to value investing is that sometimes investors must wait years for their value portfolio to become fully priced. One way to pass this time more pleasantly is to choose value stocks that pay generous dividends. This allows investors to collect quarterly income while waiting for capital gains to materialize.

Here are 16 high-quality value stocks, all paying an above-average dividend and poised to benefit from a strengthening U.S. economy in 2021.

Data is as of June 11. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.

Kroger

  • Market value: $29.3 billion
  • Dividend yield: 1.9%

Kroger (KR) is one of the world's largest food retailers, operating some 2,750 grocery retail stores, 1,585 supermarket fuel centers and 435 distribution centers across the U.S. It serves nearly 11 million customers on a daily basis. In addition to food stores, the company owns 170 jewelry stores under the Fred Meyer and Littman Jewelers brands.

Pandemic-related dine-at-home trends helped Kroger generate 14.1% growth in same-store sales last year and a 58.4% improvement in adjusted earnings per share (EPS). Kroger rewarded its investors with a 13% dividend hike and $1.3 billion of share repurchases.

Given the difficulty in comparisons to its pandemic-driven share-price returns in 2020, Kroger offered guidance for 2021 on a two-year stack basis, which includes the sum of last year's actual results and this year's forecasts. That said, Kroger is targeting 9% to 11% growth in same-store sales using its 2019 results as a base, and a 12% to 16% increase in adjusted EPS.

According to Argus Research analyst Chris Graja, who has a Buy rating on the value stock, Kroger has continued to gain market share as the pandemic ebbs due to the company's competitive pricing. He thinks KR's growth prospects remain strong, fueled by its popular private brands and detailed customer analytics.

However, Goldman Sachs analyst Kate McShane worries about inflationary pressures and Kroger's limited ability to protect margins from rising costs. She downgraded KR shares to Sell from Neutral in May.

The price of KR shares declined after her bearish call. At present, it's one of the best value stocks in the consumer staples sector, trading at 14 times its forward price-to-earnings (P/E) ratio and a nearly 40% discount to its peers.

In addition to a modest valuation, Kroger has a solid balance sheet, abundant free cash flow (FCF) – which is the cash leftover after capital expenditures, dividend payments and financial obligations are met – and an 11% annual dividend growth over five years. Additionally, KR has an ultra-safe 26% payout ratio, which is the proportion of earnings a company pays its shareholders in the form of dividends.

NortonLifeLock

  • Market value: $16.6 billion
  • Dividend yield: 1.8%

NortonLifeLock (NLOK) provides cybersecurity solutions for consumers worldwide. The company serves more than 80 million customers globally via various subscription-based products that enhance device security, protect online privacy and guard against identity theft.

NLOK addresses a huge cybersecurity market, as evidenced by the fact that more than 330 million people experienced cybercrime and over 55 million were victims of identity theft in the last 12 months.

The company's revenues rose 9% during its fiscal fourth quarter, which ended April 2. Customer count increased by 2.8 million over the three-month period and adjusted EPS improved 54%.

At a May investor event, NortonLifeLock shared its long-term strategy for accelerating growth. Its plan includes optimizing the usability of its products and driving sales leads via paid marketing channels and acquisitions, such as its recent purchase of German-based cybersecurity firm Avira.

In addition, the company committed to three-to-five-year financial goals that include double-digit yearly sales growth, EPS of $3.00, roughly double 2020 levels, and annual free cash flow of $1 billion – all of which will be returned to investors, excluding acquisitions.

BofA Global Research analyst Tal Liani thinks the stock will benefit from a cybersecurity renaissance as consumers become more proactive in addressing cyberthreats, and upgraded NLOK shares to Buy in May.

As far as value stocks go – and given these ambitious growth plans – NLOK shares appear undervalued at a 17 times forward P/E. Plus, it's priced at a 37% discount to its fellow cybersecurity stocks.

NortonLifeLock's quarterly dividend didn't rise last year, but the company did reward investors with a $12 one-time special dividend in January 2020.

Huntington Ingalls Industries

  • Market value: $8.9 billion
  • Dividend yield: 2.1%

Huntington Ingalls Industries (HII) designs, builds and repairs military ships for the U.S. Navy and Coast Guard, including amphibious assault ships, surface combatants, cutters, aircraft carriers and submarines.

The company is America's largest military ship builder, the only producer of aircraft carriers for the U.S. Navy and one of only two companies that makes nuclear submariners. Over 70% of the U.S. Navy's warship fleet came from Huntington Ingalls' shipyards.

HII's adjusted EPS grew 47% year-over-year in the first quarter and its contract backlog rose to a record $48.8 billion. Huntington Ingalls' significant contract awards so far in 2021 include $2.9 billion for the overhaul of a nuclear-powered aircraft carrier and a $250 million deal to provide support to Naval Information Warfare Center Pacific's Intelligence, Surveillance and Reconnaissance department.

Additionally, HII won an option on an existing U.S. Navy contract to construct a 10th nuclear submarine and inked a $302 million contract with the Naval Sea Systems Command.

It's certainly earned a spot as one of the best value stocks for investors, with HII seeing a 19.3% compound annual growth rate (CAGR) for EPS over the past 10 years. Plus, it's brought in a 568% total return over that same time frame – more than twice that of the S&P 500 Index (.SPX).

This defense contractor has also delivered eight consecutive years of dividend growth, averaging an 18.6% annual dividend hike over five years.

HII shares are attractively priced at a 16.7 times forward earnings and a 22% discount to industrial sector peers.

Tyson Foods

  • Market value: $28.2 billion
  • Dividend yield: 2.3%

Tyson Foods (TSN) produces approximately 20% of the beef, pork and chicken consumed in the U.S. It supplies meat to national restaurant chains, club stores, grocery stores and foodservice customers. The company's portfolio of brands includes Tyson, Jimmy Dean, Hillshire Farms, Ball Park, Wright, Aidell's and State Fair.

Rising global protein consumption and a gradual recovery of the foodservice industry powered Tyson Foods to 41% adjusted EPS growth during the first six months of fiscal 2021. The company also generated $1.3 billion in operating cash flow.

Tyson is strongly focused on expanding its poultry business and recently invested $425 million in a new poultry plant in Tennessee. Another growth initiative for the company is plant-based meat alternatives. TSN is launching a new line of plant-based products in Asia that complement its Raised & Rooted brand of plant-based burgers, brats and Italian sausage already sold in U.S. grocery stores.

Argus Research analyst John Staszak upgraded TSN shares to Buy in May based on expectations that Tyson will experience continued improvement in foodservice channels as the economy reopens.

However, Piper Sandler analyst Michael Lavery worries about headwinds from rising input costs and recently reduced his rating on the value stock to Neutral.

Tyson has a nine-year record of raising dividends and has generated impressive 26% annual dividend growth, on average, over five years, while keeping payout below 30%. TSN shares are conservatively valued at 13 times forward P/E and a nearly 40% discount to other consumer staples stocks.

Bristol Myers Squibb

  • Market value: $150.4 billion
  • Dividend yield: 2.9%

Bristol Myers Squibb (BMY) develops life-saving therapeutics in the areas of hematology, oncology, cardiovascular and immunology. Its portfolio of blockbuster drugs includes Opdivo, Yervoy and Abraxane for cancer, Revlimid and Pomalyst for blood disorders, Eliquis for reduced risk of strokes and Orencia for rheumatoid arthritis.

The acquisitions of Celgene in 2019 and MyoKardia in 2020 added important new drugs to BMY's portfolio, including Mavacamten for chronic heart disease, and Pomalyst, Abraxane and Vidaza for cancer.

Bristol Myers is well-positioned for more M&A activity, judging by its strong balance sheet and rising free cash flow. The company ended the first quarter with $13.2 billion in cash versus net debt of $33.1 billion on its balance sheet.

Over the next five years, Bristol Myers is committed to delivering double-digit revenue growth from continuing operations, $3 billion of operating synergies from integrated acquisitions and $45-$50 billion of FCF. The company is also guiding for 2021 adjusted EPS of $7.35-$7.55, up 16% at the mid-range from last year's results and easily covering its annual dividend payment of $1.96 per share.

Truist Securities analyst Gregg Gilbert upgraded BMY shares to Buy in April, citing the company's broad pipeline, which he considers the largest of the major pharmaceutical stocks.

On the other hand, Morgan Stanley analyst David Risinger says he is uninspired by the company's pipeline, can see no major near-term growth catalysts and cut his BMY rating to Equalweight (equivalent of Neutral).

As far as value stocks go, BMY shares look especially bargain-priced at a 63% discount to healthcare competitors and a lowly 9 times forward P/E. In addition, the company has delivered 14 consecutive years of dividend growth, including a 9% hike in 2020.

Merck

  • Market value: $193.1 billion
  • Dividend yield: 3.4%

Pharmaceutical giant Merck (MRK) is best-known for Keytruda, its blockbuster cancer drug. With annual sales exceeding $14.3 billion, Keytruda is a top-selling drug worldwide, second only to AbbVie's (ABBV) Humira. But unlike Humira, whose patent is up in 2023, Keytruda has at least seven more years of patent exclusivity. Other successful drugs in MRK's portfolio include diabetes drug Januvia and HPV vaccine Gardasil.

The company has struggled a bit recently, delivering top and bottom-line results that missed analyst estimates two quarters in a row. While Keytruda sales were up 19% year-over-year in the March quarter and sales in Merck's animal health business performed strongly (+17%), sales of Gardasil and other vaccines fell due to fewer wellness visits during the pandemic. Overall, Merck delivered flat sales and a disappointing 7% annual decline in adjusted EPS during the first quarter.

Merck also largely sat out the pandemic, discontinuing development of its own COVID-19 vaccine in January, although the company continues to work on an antiviral pill for treating those who get the virus.

The recent spinoff of Merck's women's health business Organon as a separate publicly traded company triggered a downgrade of MRK shares to Hold by Argus Research analyst David Toung. He thinks the move will initially reduce the company's operating margins, although the deal also frees up capital it can reinvest in its drug pipeline.

Despite recent challenges, Merck has generated a respectable average 11.2% annual growth in EPS and 7.2% in dividend hikes over five years. Dividend payments have also risen 11 years in a row. Other MRK strengths include plenty of cash ($7.0 billion) and robust free cash flow generation ($8.9 billion in the past 12 months).

The stock's valuation is also attractive. MRK shares trade at a 12 times forward earnings, a 49% discount to pharma industry peers and 218% below its five-year historical forward P/E.

General Mills

  • Market value: $38.1 billion
  • Dividend yield: 3.3%

General Mills (GIS) makes cereals (Cheerios and Chex), yogurt (Yoplait), ice cream (Haagen Dazs) and other foods. Eight of the company's brands each generate over $1 billion of annual sales, and General Mills hit a home run with its Blue Buffalo pet food business, which has been delivering double-digit sales growth. The company is expanding its pet food franchise by acquiring Tyson Food's pet treats business.

During the pandemic lockdown, General Mills benefited from a significant increase in meals eaten at home, which fueled double-digit percentage growth in EPS during fiscal 2020.

This has created difficult year-over-year comparisons during fiscal 2021 and the company generated only 6% year-over-year adjusted EPS growth during the February quarter, falling short of analyst estimates. In addition, rising input and logistic costs have begun squeezing fiscal 2021 operating margins.

Despite these challenges, Evercore ISI analysts rank GIS a standout and pandemic winner among the major food companies on two metrics they considered essential for sustainable organic growth – household penetration (are more consumers trying products?) and repeat purchases (are they buying those products again?).

For those seeking out value stocks with dependable dividends, GIS is one to watch. Although General Mills hasn't increased dividends every year, it hasn't missed a dividend payment in over 120 years, with annual growth over five years averaging 2.6%.

GIS shares are valued at a 17 times forward P/E multiple and at a 22% discount to their consumer staple sector peers.

Rent-a-Center

  • Market value: $4.2 billion
  • Dividend yield: 2.0%

Rent-a-Center (RCII) provides lease-to-own options for consumers on big ticket items such as furniture, appliances, computers and consumer electronics. The company operates approximately 1,970 Rent-a-Center stores across the U.S., Mexico and Puerto Rico, as well as 460 franchise locations.

Late last year, Rent-a-Center acquired Acima Holdings for $1.65 billion in cash and stock. Acima Holdings works with partners to provide financing for rent-to-own customers at more than 15,000 retail locations. Loop Capital Markets thinks this acquisition will make Rent-a-Center better able to compete for national accounts and upgraded its rating on the value stock to Buy.

An improving economy and Acima's sales contributions helped Rent-a-Center increase revenues 25% during the March quarter, boost same-store sales gains by 23% and lift adjusted EPS by 97%. The company also increased its guidance for 2021 sales and adjusted EPS.

KeyBanc recently raised its rating on RCII shares to Overweight (the equivalent of a Buy). They noted customer payment trends are improving thanks to government stimulus payments, while also saying growth in the company's digital segment is accelerating and that RCII stock appears undervalued.

Rent-a-Center re-initiated quarterly dividend payments in 2019 after refinancing its debt and hiked its annual payments by 16% in 2020 and 7% in 2021. While the company's debt is still relatively high at 69% of capital on a trailing 12-month basis, its payout ratio is conservative at 36% and rising EPS provides a margin of safety for the dividend.

RCII shares are valued at an 11 times its forward P/E multiple, a 36% discount to other consumer discretionary sector stocks and a 47% discount to the company's five-year historic forward P/E.

NRG Energy

  • Market value: $9.1 billion
  • Dividend yield: 3.5%

NRG Energy (NRG) provides electricity and natural gas to more than 3.7 million residential, small business and industrial customers. The company mainly serves customers in Texas, but also has a sizable presence in the Northeast.

In 2021, NRG acquired Direct Energy, a leading retailer of electricity and natural gas across the U.S. and Canada. This acquisition adds more than 3 million retail customers and $740 million of annualized adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) to NRG's operations.

A severe winter storm last February hurt the company's Texas operations and is expected to reduce NRG's 2021 cash earnings by $500-$700 million. Despite these challenges, the company is guiding for $2.4 to $2.6 billion of adjusted EBITDA this year, up from $2.0 billion one year earlier. NRG remains on track to realize $135 million of acquisition-related synergies in 2021, which will rise to $300 million by 2023.

However, the reduction in cash earnings caused NRG to extend its deleveraging plan for an additional year, with completion now targeted in 2022.

The company plans to raise cash through the $760 million sale of some generating assets in its Eastern and Western regions and the $202-million divestiture of its remaining stake in a solar project.

Guggenheim analysts recently downgraded NRG shares to Neutral. They think the company remains fundamentally sound, but are concerned about the near-term impact of storm losses on NRG's credit outlook. S&P has a BB+ long-term credit rating on NRG.

NRG increased its dividend by 8% in 2021. Despite the storm-related hit to its 2021 cash earnings, the company's dividend appears relatively safe. Payout from adjusted EPS is estimated at only 26% this year and cash flow payout is just 23%.

As far as value stocks are concerned, NRG shares appear bargain-priced at 7 times forward earnings, a 62% discount to utility industry peers and a 40% discount to the company's historic five-year forward P/E.

Verizon

  • Market value: $237.4 billion
  • Dividend yield: 4.4%

Verizon Communications (VZ) is the one of the country's largest wireless services providers. It serves 94 million wireless subscribers and 13 million internet, TV and landline accounts.

Like the other wireless carriers, Verizon is making massive investments in 5G rollout. The company is spending more than $53 billion to build out its ultra-fast 5G wireless network and has budgeted spending of $18 billion on network equipment and related infrastructure this year.

Verizon plans to power its 5G network with C-band and millimeter wave (mmWave) spectrum acquired at auctions this year. The company anticipates supplying 15 million households with access to 4G and 5G fixed wireless in 2021, which will likely rise to 50 million households within a 5G coverage range by late 2025.

To help fund 5G spending, VZ is selling media assets that include AOL and Yahoo for $5 billion, while retaining a 10% stake in the media business.

Verizon bid nearly $7 billion last year to acquire Tracfone, a leader in prepaid wireless services, in a deal expected to create significant cross-selling opportunities. Verizon expects to convert some of Tracfone's 21 million customers to more profitable post-paid services. The acquisition is being scrutinized by Federal Communications Commission (FCC) regulators, but Verizon believes the transaction remains on-track to close in the second half of 2021.

Despite big initiatives to re-energize top-line growth, most Wall Street analysts remain lukewarm on the value stock. MoffettNathanson analyst Craig Moffett downgraded VZ shares to Neutral in April, citing cord-cutting and other pressures on its pay TV business that may force price reductions.

Verizon has increased dividends 14 years in a row and its CEO strongly hinted that another dividend hike could happen later this year. Five-year dividend growth has been relatively modest, averaging just 2% annually and VZ's payout ratio is relatively high at 49%.

The company's high debt is also concerning. Verizon has total debt of $180.7 billion and a 223% ratio of debt-to-equity. The large debt load could limit dividends and 5G spending.

However, these risks appear already priced into VZ stock, which trades at a lowly 11 times forward P/E and 47% discount to industry peers.

AbbVie

  • Market value: $203.9 billion
  • Dividend yield: 4.5%

Best known for Humira, the world's top-selling drug, AbbVie hopes to offset declining Humira revenues caused by biosimilar competition with newer blockbuster treatments such as Skyrizi (psoriasis), Rinvoq (rheumatoid arthritis) and Imbruvica (solid tumors).

ABBV is also supplementing its in-house drug pipeline with acquisitions. The purchase of Allergan roughly one year ago added Botox, a best-selling drug in the aesthetics market, and eyecare drug Restasis to AbbVie's portfolio.

Due mainly to the Allergan acquisition, ABBV's net revenues rose 51% year-over-year during the March quarter and adjusted EPS grew 22%. The company also increased 2021 adjusted EPS guidance, targeting 18% growth at the midpoint, and expects to launch more than a dozen new drugs over the next two years, including five expected approvals in 2021.

AbbVie is a cash-flow machine, generating $18.5 billion of FCF over 12 months, and it is spending $550 million to acquire Soliton (SOLY). Soliton owns Resonic, a non-invasive device for improving the appearance of cellulite. The new device complements ABBV's existing portfolio of body sculpting treatments it acquired with Allergan.

Analysts see ABBV as one of the best value stocks in the healthcare sector, with 17 of 23 pros giving the shares Buy or Strong Buy ratings. The company has generated eight consecutive years of dividend growth, with annual hikes exceeding 18%, on average, over five years.

Despite nine consecutive quarters of beating consensus analyst estimates, fears about Humira sales declines are causing ABBV shares to trade at a 9 times forward earnings, a 63% discount to pharma industry peers and a 17% discount to the stock's historic forward P/E. AbbVie also offers a 4.6% dividend yield that is three times that of the typical healthcare stock.

Prudential Financial

  • Market value: $41.6 billion
  • Dividend yield: 4.4%

Prudential Financial (PRU) has been selling insurance, annuity and investment products for over 140 years and currently serves more than 50 million customers worldwide.

The company manages approximately $1.7 trillion in assets under management and is among the world's top asset managers. In addition, Prudential ranks among the top providers globally of group insurance, annuities and individual life insurance.

The company plans to boost profits by increasing efficiency, trimming $750 million from annual costs over the next three years, de-risking its business and reallocating $5-$10 billion of capital to become less interest-rate sensitive.

Prudential began 2021 by achieving record adjusted operating income in the March quarter, supported by strong sales and capital inflow trends. More than $5.5 billion of new capital flowed into the asset management business and first-quarter adjusted operating EPS rose 85% to $4.11, greatly exceeding analysts' consensus estimate of $2.75 per share.

Over the next two years, Prudential plans to return $10.5 billion to investors via dividend hikes and share repurchases. Dividends have risen an average 10.9% annually over the past five years, and increased 5% during the March quarter.

Bloomberg recently reported that the company is exploring the sale of its retirement product business serving corporate clients, which could fetch more than $2 billion.

J.P. Morgan Securities analyst Jimmy Bhullar worries about the company's M&A strategy, and recently downgraded PRU shares to Neutral. However, he still likes Prudential's Japan and asset management franchises, as well as a business mix that supports a strong return on equity.

What makes this one of the best value stocks is that PRU shares trade at a modest 8 times forward earnings and a 32% discount to financial sector peers.

Altria Group

  • Market value: $92.1 billion
  • Dividend yield: 6.9%

Altria Group (MO) is the second- largest tobacco company in the U.S by market cap. Best known for its-top selling Marlboro cigarette brand, Altria is also a leader in non-combustible tobacco products (Copenhagen, on!, IQOS and Juul) and cigars (Black & Mild). Other businesses include wines sold under the Ste. Michelle label, a 10% stake in global beer giant Anheuser-Busch InBev (BUD) and a majority stake in cannabis company Cronos Group (CRON).

Unfortunately for investors, Altria's $12.8 billion investment in e-cigarette company Juul has been a disaster due to regulatory restrictions on sales of flavored e-vaping products. The company has been forced to write down the value of its Juul investment to $1.5 billion, 88% below the initial purchase price.

MO's March quarter revenues fell 5% and adjusted EPS declined by approximately 2% as a result of continued declines in sales of smokable products, which were only partially offset by higher oral tobacco and wine sales. The company is guiding for 2021 adjusted EPS of $4.49-$4.62, up 4.5% at the midpoint from last year.

Altria Group has increased its dividend 55 times in 51 years. The last annualized dividend hike was 2.4% approximately one year ago. The company targets dividend payout at roughly 75% of adjusted EPS. This rich payout is made possible by the recurring nature of MO's sales and the company's sizable free cash flow ($7.0 billion in the last 12 months).

Morgan Stanley analyst Pamela Kaufman has an Overweight rating on MO shares and sees upside relating to a Federal Trade Commission (FTC) ruling that could unwind the company's 35% stake in Juul. Severing ties between the companies will give Altria a tax shield to use against future capital gains.

Argus Research analyst Kristina Ruggeri is less optimistic and recently reduced her MO rating to Hold. She is concerned about regulatory pressures and the Biden administration's plan to raise taxes on cigarettes.

The value stock is valued at an 11 times forward P/E, a 50% discount to consumer staple peers and a 27% discount to the stock's historic forward earnings.

Unum Group

  • Market value: $6.2 billion
  • Dividend yield: 3.9%

Unum Group (UNM) provides group disability, life, accident and critical care insurance to more than 39 million customers in the U.S., the U.K. and Europe. The company sells its group insurance plans to more than 55% of the Fortune 100 companies and is the world's largest provider of disability insurance. Its primary brands are Unum U.S., Unum International and Colonial Life.

Unum was hit hard by the pandemic due to COVID-19 deaths causing a spike in benefit payouts. In addition, lower interest rates trimmed investment returns and high unemployment rates resulted in many employer-based plans being canceled, which reduced premium income. As a result, the company's net income fell 28% in 2020 and UNM shares dropped more than 20%.

The economic recovery underway in 2021 is boosting plan sales and Unum anticipates a strong rebound in adjusted earnings in the second half of 2021, although full-year 2021 adjusted earnings are expected to be lower than last year. Consensus analyst estimates look for Unum to generate EPS of $4.70 this year, rising 14% to $5.37 in fiscal 2022.

The company has a 22-year record of paying dividends and has increased dividends 12 years in a row. Signaling its confidence in a late 2021 EPS rebound, Unum hiked its dividend by 5.3% in May. A stellar balance sheet with cash on hand of $1.3 billion enhances dividend safety and provides capital Unum can redeploy to take advantage of rising interest rates.

UNM shares are compelling as far as value stocks go, trading at 6.5 times forward earnings and a 47% discount to their financial sector peers.

Ryder System

  • Market value: $4.3 billion
  • Dividend yield: 2.8%

Ryder System (R) is a trucking and logistics company that provides dedicated transportation and commercial fleet management services.

Its services include vehicle leasing, rental and maintenance, warehousing, freight brokerage, last mile delivery and vehicle sales across North America and the U.K. Ryder manages a fleet of 235,000 commercial vehicles, owns 300 warehouses and enables companies to deliver direct to 95% of customers in the U.S. in two days or less.

Ryder's largest business segment, fleet management solutions, offers truck, tractor and trailer leasing for companies that want to outsource their delivery services.

COVID-related business shutdowns caused Ryder's revenues to decline 5.7% last year, but the company appears poised for a rebound in 2021 as a result of rising demand for freight shipping and consumer demand for home delivery.

The company's adjusted EPS rose to $1.09 in this year's March quarter, compared to a per-share loss of $1.38 in the year prior. Ryder also increased its full-year 2021 adjusted EPS guidance by roughly 30% to a range of $5.50 to $5.90. Consensus analyst estimates are looking for 2021 adjusted EPS of $5.83.

Research firm CFRA expects shipping rates to rise into 2022 as freight demand surges and highlighted Ryder as one of the trucking companies that has "slipped through the cracks" for investors. The value stock is trading at 14 times forward EPS, while on track for 30%+ EPS growth this year.

Ryder had hiked its annual dividend 15 years in a row, including a 10% increase in 2019. The company kept its dividend steady in 2020 due to COVID-related uncertainties. Given the strong forward EPS guidance, investors can reasonably assume that Ryder will soon be resuming dividend growth.

The company's high leverage is a bit concerning, but Ryder reduced debt-to-equity from 293% to 280% during 2020, and expects the ratio to fall to the low end of its 250%-300% target range in 2021. As a percentage of free cash flow, Ryder's debt appears more manageable at just a 3.8 times ratio to trailing twelve-month free cash flow.

United Parcel Service

  • Market value: $176.9 billion
  • Dividend yield: 2.0%

Another great play among value stocks is United Parcel Service (UPS). This freight delivery and logistics giant operates in over 200 countries and owns or leases a fleet of 127,000 trucks and delivery vehicles and 570 aircraft. It delivers an average of 24.7 million documents and packages on a daily basis, and proved its mettle in early 2021 by delivering over 196 million doses of the COVID vaccine, with 99% on-time delivery.

The company was firing on all cylinders during the March quarter, recording high double-digit growth in its U.S. and international delivery segments and supply chain and freight segment. Overall, revenues rose 27% year-over-year and adjusted EPS improved 141%. UPS also generated $3.7 billion of free cash flow during the quarter, which it plans to use to pay down $2.5 billion of debt in 2021, while investing $4 billion in growth initiatives.

Areas UPS is targeting for growth include small and medium-sized business customers, healthcare and international. The company has committed to reaching $100 billion of revenues by 2023, up 18% from 2020 levels, investing approximately $14 billion in growth initiatives and achieving 26%-29% returns on invested capital.

Barclays analyst Brandon Oglenski (Hold) thinks UPS isn't getting enough credit from investors for its pricing power. He believes the company's growth strategies will make its recent price increases sustainable over the long-term and has a price target of $230 on the stock, representing expected upside of 13.2% over the next 12 months or so.

BofA Global Research analysts also like the company's focus on high-quality revenue growth and recently reiterated its Buy rating on UPS stock.

UPS shares trade at 18.5 times forward P/E and a 14% discount to their industrial sector peers. On a forward cash flow basis, the stock trades at a 11 times the multiple and a 28.4% discount to its peers.

The company has either maintained or increased its dividend every year since going public in 1999. The last dividend hike came in February, when UPS raised its annual payment by 1% and achieved its 12th consecutive year of dividend growth. Dividend increases over five years have averaged 5.5% annually.

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