Now is as good a time as any to rebalance one’s portfolio toward a more value-oriented approach. In fact, given that recent worries about inflation are beginning to manifest, it is a great time to look toward value stocks.
Whether this inflation is transitory, as the Federal Reserve has stated, or indeed a longer-term issue remains to be seen. I’ll leave that up to you to decide, and I’ll reserve my own judgment, but I think it’s fair to say that it’s probably not the best idea to simply sit around passively, hoping for the best.
Consumers are bound to take a much more pragmatic view of markets and money as we shift into the pandemic aftermath throughout the rest of 2021. That should be a boon to the value side of the stock market and should mean less love for growth stocks.
Owl Rock Capital Corp.
Owl Rock Capital (ORCC) is a finance company that provides loans and lending services to middle market companies. The company loans these mid-sized companies money for all of the things you probably imagine a company might be seeking: growth, acquisitions, market and product expansion, refinancing and recapitalization.
Economists consistently argue that bolstering and growing mid-market firms is a boon to the greater overall economy. So, the investment theory bull case here is that by investing in Owl Rock Capital, you’ll be investing in the true economic growth engines.
So, what makes Owl Rock Capital a particularly compelling stock within mid-market corporate financing?
By the commonly cited value indicator of P/E ratio the company stands out. Its 6.38 P/E ratio puts it higher than 83% of peers in the credit industry. Further, being that Owl Rock Capital makes investments in companies it makes sense to be curious about its investment income. In the three months ended March 31, 2021 the company received $221.6 million in investment income, up from $204.7 million in the same period a year earlier.
A final reason to consider purchasing ORCC stock is its dividend. The dividend yields 8.73% and should serve to intrigue investors who understand the value of such payouts in the larger scheme of things.
I continue to believe Intel (INTC) is an extremely compelling value buy in the semiconductor space. Wall Street remains afraid to step out and say that it’s a very reasonable investment at present. Analysts covering INTC stock are quite evenly distributed between those who consider it a buy, and those who consider it a hold. They’d rather recommend overpriced AMD (AMD) and NVIDIA (NVDA) shares with their P/E ratios of 31 and 80, respectively.
Intel carries a rock-bottom P/E ratio of 12.11, meaning investors are paying a far lower premium for its earnings than from those other two. Intel has shattered earnings predictions in the last 2 quarters, and bested them in three of the last four quarters. In fourth quarter 2020, it posted $1.52 EPS, well above consensus figures of $1.11. In Q1 2021, it bested them again. Its $1.39 EPS far outpaces the $1.15 analyst consensus.
Another way to look at the often made comparison between AMD, NVIDIA and Intel is year-to-date performance. AMD stock is down 20% year-to-date, NVDA stock is up 5%. However, Intel is up 9%. Intel also carries a dividend which pays a 2.51% forward yield.
CVS Health (CVS) is a value stock with plenty of upside. In fact, it’s been trending upward this year, so now is probably the best time to get on board in order to maximize gains. CVS stock is already up 29%, from $69.99 to $87.94, since the beginning of the year. That should at least raise the question of whether it makes sense to buy in. Analyst target prices suggest that there is still room to run up, giving it an average target price of $89.37, running to a high of $107.
InvestorPlace’s Doug Morse looks at CVS Health as a strategically savvy company in position to rise:
“CVS has spent the past several years positioning for a bright future via the acquisition of a pharmacy benefit manager and health insurance provider. Assuming these strategies come together to materially impact healthcare outcomes and expenses, the company is positioned for future earnings growth. This company is investable right now for patient investors willing to see results in the future and collect a dividend.”
Healthcare stocks are a traditional value play, and CVS Healthcare is a particularly good one to consider during this rebound.
OneMain Holdings (OMF) originates and services personal loans to non-prime customers. OMF stock has appreciated roughly 9% this year, and has ample room to rise if analyst target prices are indeed correct.
Investors should be interested in OMF stock not only because of its traditional value metrics, but simply because of its growth in the past year. Q1 2020 net income hit $32 million at OneMain Holdings. By Q1 2021 that same figure had risen to $413 million, meaning net income growth of 1,191% over the period.
A big driving factor for any loan origination and servicing company is its ability to mitigate risk. Specifically, such companies have to minimize delinquencies and charge offs in order to maximize profits. The company has been steadily reducing the rates of charge offs and delinquency over the past several years indicating that it is more astutely originating loans.
It hit record low 1-3 month delinquency rates recently and expects charge offs to remain under 5% in 2021.
The aerospace and defense industry is one in which there are many value stocks. Raytheon (RTX) is one of the well-known names in the industry, and in my opinion, one of the best to consider right now.
The company comprises several businesses including Collins Aerospace, Pratt & Whitney, Raytheon Intelligence & Space and Raytheon Missiles & Defense. Raytheon sells across commercial, military and government making it a very broad company within the aerospace and defense vertical.
Like OneMain Holdings above, Raytheon is a company whose stock is rising yet has room for profitability still. Year-to-date, RTX stock is up 17%. Optimistic analyst expectations indicate there could be room for further 21% growth in share price moving forward.
Admittedly, Raytheon isn’t the best value pick in the defense industry, but it is a well-regarded pick with growth in store. Even if it doesn’t tick some of the more often used value indicators like P/E ratio in comparison to peers, it does have value merit.
Raytheon stock carries a dividend with yield which exceeds that of almost two-thirds of defense industry peers. That’s true both currently, and in forward dividend yield terms.
Hasbro (HAS) is a company responsible for many classic children’s toys and games. Its brands including Magic the Gathering, Monopoly, My Little Pony, Nerf, Play-Doh and Transformers are bound to rouse feelings of nostalgia amongst readers. While that’s all well and good, the real reason to be interested in Hasbro as a stock has less to do with nostalgia and more with value.
Although net revenues increased a modest 1% from Q1 2020 to Q1 2021, operations became markedly stronger. The net effect is that investors are now looking at a company which is much better run.
Operating profit, net earnings, net earnings per share, and EBITDA all increased in excess of 100% during the period. Perhaps the most all-encompassing figure which best summarizes the shift is that of net earnings. Hasbro went from a company which recorded a loss of $69.7 million in Q1 2020, to one which recorded net earnings of $116.2 million in Q1 2021. Call it an about face, a complete 180, or whatever you like. But the result is great by any name.
HAS stock is relatively fairly valued right now. If investors can recognize its turnaround, there’s a lot of reason to believe that capital could flow in and share prices rise rapidly.
General Dynamics (GD) is another player in the aerospace and defense industry. Like Raytheon, General Dynamics has been growing in 2021.
GD stock has appreciated in price by almost 25% since the new year. GD stock differs from RTX stock in that it offers more traditionally value oriented metrics including a P/E ratio. Outside of value metrics, General Dynamics stock offers enticing profitability metrics including strong operating and net margins, and a return on equity among the upper 10% of aerospace and defense firms.
Both the fact that revenues growth and dividend growth rate should entice value seeking investors interested in the defense vertical.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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