Top-Notch Investment Opportunities in Shares for 2024
Value investors aim to buy shares of companies that are undervalued relative to their inherent worth and growth potential. If you could obtain $100 notes at just $80 each, wouldn't you seize this opportunity as often as possible?
As of August 2024, the S&P 500 index has seen a rise of approximately 2.4%. This market situation presents a significant opportunity for value investors. When the overall stock market experiences a decline, even top-tier companies with robust fundamentals can see their share prices decrease. Furthermore, value stock companies often exhibit stability and reduced volatility compared to growth stock companies due to their well-established nature.
Here's an overview of value stocks, including some accessible options for beginners, along with crucial concepts and key metrics value investors need to understand.
3 Top Value Stocks for Novices
Value stocks are publicly traded companies selling at relatively low evaluations in comparison to their earnings and long-term growth potential.
Let's explore three excellent value stocks: Berkshire Hathaway (BRK.A 0.38%), Procter & Gamble (PG 0.07%), and Target (TGT -0.21%). We'll then delve into some metrics to assist you in finding the best value stock investments.
1. Berkshire Hathaway
Berkshire Hathaway: This conglomerate, headed by CEO Warren Buffett since 1964, has expanded into more than 60 fully-owned businesses and a vast stock portfolio comprising numerous positions. Berkshire Hathaway consistently increases its net asset value and earning power over time, operating under the very strategy that has propelled the stock for more than 55 years to almost double the annualized return of the S&P 500 index. Buffett and his business partner, Charlie Munger, have consistently kept substantial cash reserves to invest in opportunities as part of their value investing principles. In Buffett's 2022 shareholder letter, released in February, he disclosed that Berkshire Hathaway held $144 billion in cash and cash equivalents. However, Buffett swiftly identified value investing opportunities following the letter's release, disclosing at Berkshire's annual shareholder meeting that the company had purchased $40 billion worth of stocks within the three weeks following the letter's publication.
2. Procter & Gamble
Procter & Gamble: This consumer products manufacturer is responsible for brands such as Gillette, Tide, Downy, Crest, Febreze, and Bounty, among others. Through its numerous successful brands, Procter & Gamble has consistently grown its sales and has become one of the most dependable dividend stocks in the market. The company is among the 44 stocks that have achieved the coveted Dividend King status, having raised its dividend for 65 consecutive years. P&G is an excellent example of a recession-resistant stock since its product demand remains steady during various market cycles. The consumer staples giant continues to post impressive growth, with share prices rising by 17% as of September 2024. The size, stability, and diversity of P&G's product offerings make it an attractive option during challenging times.
3. Target
Target: Known for its popular in-house brands, this big-box retailer has maintained a steadily growing fanbase, in part due to the widespread popularity of its private labels. As with other retailers, Target’s online sales have surged during the pandemic. Its unique digital model, which involves 95% of sales being fulfilled by stores, gives it an edge over competitors and allows it to reduce costs and enhance speed. As of September 2024, Target had a price-to-earnings ratio of approximately 15, making it a more affordable choice when compared to competitors such as Walmart and Costco, which trade for 28 and 42 times their respective earnings, respectively. Additional advantages for value investors include Target's status as a Dividend King, having boosted its dividend for 50 consecutive years.
What are value stocks?
Most stocks can be classified as either value stocks or growth stocks. Generally speaking, a value stock sells at a lower price than its financial performance and fundamental value suggest it is worth. A growth stock, on the other hand, is a stock in a company expected to deliver above-average returns compared to its industry peers or overall stock market.
Growth Stock
A company expected to exhibit above-average revenue and earnings growth compared to its industry or the overall stock market. Some stocks may possess both characteristics or fall between average valuations or growth rates, making classification as a value stock depending on the pertinent features it possesses. Generally, value stocks exhibit the following characteristics:
- They are often mature businesses.
- They have steady (but not exceptional) growth rates.
- They report relatively consistent revenues and earnings.
- Most value stocks pay dividends, although this is not a mandatory rule.
Some shares can fit into either investment category. For instance, there's a strong case for both tech giants *Amazon (AMZN 0.8%) and Google's parent company, Alphabet (GOOGL -0.2%) falling under this classification. Apple (AAPL 0.7%) and Microsoft (MSFT* -0.08%) also possess arguments for each category.
Regardless of the category, financial downturns can present a unique opportunity for investors who practice value investing. The purpose of this investment strategy is to acquire shares at a reduced price, particularly when the whole stock market is experiencing a sale.
Discovering Value Stocks
Finding Value Stocks
The core concept of value investing is to locate companies that are trading at a discount compared to their inherent value. This strategy is likely to result in outperforming the overall stock market over time. However, identifying undervalued stocks is often easier said than done.
Despite this, here are three valuable tools to utilize in your search for a worthwhile purchase:
- *Price-to-Earnings (P/E) ratio:* Known as one of the primary stock evaluation metrics, the P/E ratio can be an incredibly useful tool for comparing a company's valuation within its industry. To calculate it, simply divide a company's stock price by its previous 12 months' earnings.
- *Price-to-Earnings-to-Growth (PEG) ratio:* Similar to the P/E ratio, the PEG ratio adjusts the inequality between companies experiencing slightly different growth rates. By dividing a company's P/E ratio by its annualized growth rate, you will have a more fair comparison between different businesses.
- *Price-to-Book (P/B) ratio:* In essence, the book value stands for what would theoretically be left if a company ceased operations and sold all its assets. Determining a company's share price as a multiple of its book value can aid in identifying underpriced opportunities, and is a specific focus for many value investors searching for opportunities to buy stocks trading below their book value.
Value Investors
Value Investor Profiles
Long-term investors can generally be divided into one of three categories:
- Value investors aim to discover stocks trading for less than their inherent value by utilizing fundamental analysis.
- Growth investors seek stocks with the most substantial long-term growth potential relative to their current valuations.
- Investors who employ a blended approach combine both of the previous strategies.
Warren Buffett, widely regarded as the most famous value investor in history, managed Berkshire Hathaway from 1964 until 2023. Over this period, the S&P 500 achieved a total return of 31,223%. Berkshire's own total return during this timeframe was an astounding 4,384,748% (no misprint here).
Although not quite as prominent as Buffett, Benjamin Graham is often referred to as the founding father of modern value investing. His influential books, The Intelligent Investor and Securities Analysis, are essential reading for those interested in value investing. Graham was also Buffett's mentor.
Related Investment Topics
Growth Stocks
Extract profit by identifying growth stocks: companies set for faster growth than the market or typical company within its industry.
Blue Chip Stocks
These reliable, established stocks are frequently known by name within households.
Type of Stocks
Stocks come in many sizes and varieties. We explain the basics.
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Value Stock Might
Don't Disregard Value Stocks
While they may not induce the same excitement as growth stocks, value stocks can possess just as much long-term potential, if not more. Consider that a $1,000 investment in Berkshire Hathaway in 1965 would be worth over $28 million today. Identifying companies that are trading at lower prices than their real worth is a proven investment strategy that can yield substantial returns.
Value Stock Frequently Asked Questions
What is a value stock?
A value stock is one that is trading for a lower price than its financial performance and underlying value suggest.
What are value stocks vs growth stocks?
Value investing and growth investing are two distinct investment strategies. Generally, value stocks represent an opportunity to purchase shares below their true value, while growth stocks highlight above-average revenue and earnings growth potential. Investment analysts often categorize stocks as either growth or value, however, many stocks embody elements of both styles. It is important to recognize the differences between growth and value stocks, as various investors prefer one approach over the other.
What are value stock ETFs?
An exchange-traded fund (ETF) that invests in value stocks utilizes specific criteria to uncover companies whose inherent value by a significant margin surpasses the market values implied by their stock prices. By investing in a diverse range of undervalued companies, value stock ETFs provide instant portfolio diversification. Purchasing shares in a value stock ETF can be a secure and convenient method to invest in companies within cyclical industries.
How do I start value investing?
Value investing requires extensive research. This includes studying numerous underperforming stocks to determine a company's inherent value and comparing it to its current stock price. Frequently, you will need to examine numerous companies before finding a genuine value stock.
Jennifer Davis holds no stakes in the shares mentioned below. Our platform endorses shares of Apple, Berkshire Hathaway, Costco Wholesale, FedEx, Microsoft, Target, Tesla, and Walmart. Our platform advocates for the following options: buying January 2026 $395 calls on Microsoft and selling short January 2026 $405 calls on Microsoft. Our platform incorporates a disclosure policy.
After analyzing the provided text, here are two sentences that contain the words ['finance', 'money', 'investing'] and follow from the text:
- Value investors may find attractive investment opportunities with companies like Procter & Gamble, a financially sound consumer products manufacturer with a strong growth potential and reliable dividends, as their shares can be purchased at a reasonable price compared to their earnings and inherent value.
- An essential aspect of value investing is conducting thorough financial analysis, which involves calculating metrics such as the price-to-earnings (P/E) ratio, price-to-earnings-to-growth (PEG) ratio, and price-to-book (P/B) ratio to identify undervalued stocks and make informed decisions in the financial market.
