With the market seemingly poised for a rotation out of high-risk assets toward more reasonable fare, unloved value stocks may have a chance to finally secure their time in the spotlight. Basically, the good times of any artificial intelligence-based technology firm soaring higher may be ending. Therefore, seeking legitimate bargains may be the key to success.
At first glance, the idea of targeting unloved value stocks might seem a tad too conservative. After all, the September jobs report came in much hotter than anticipated. On the Friday of that release, sentiment for equities and even cryptocurrencies jumped up. Nevertheless, the longer-term implications – more dollars chasing after fewer goods – don’t bode well for the fight against inflation.
Unfortunately, the Federal Reserve might have to take off the gloves when it comes to escalating consumer prices. Therefore, growth at any cost may be out. And in its place may be the below unloved value stocks to buy.
Kraft Heinz (KHC)
When a name shows up on a list of Warren Buffett stocks to buy, you know you have a great candidate for value stocks on your hands. That’s the case with Kraft Heinz (NASDAQ:KHC), a multinational food company that also provides beverages. Fundamentally, KHC should benefit from the trade-down effect. If pressures against the economy continue to rise, you can look for consumers to trade down from restaurants and cook at home.
Under that circumstance, Kraft Heinz should be a winner. I’ll go out on a limb and say that’s probably one reason why the Oracle of Omaha loves it. However, KHC decisively ranks among the unloved value stocks. Since the beginning of this year, shares tumbled more than 20%. At the same time, the red ink may offer an enticing bargain.
Currently, shares trade at a forward earnings multiple of 10.86X, lower than the sector median of 15.24x. It also provides a hefty dividend yield of 4.93%. Lastly, analysts rate KHC a moderate buy with a $39.80 price target, implying almost 23% upside.
A top telecommunications firm, Verizon (NYSE:VZ) is probably best known for its wireless services and for its 5G rollout. With society becoming increasingly connected in the digital realm, Verizon represents one of the most relevant enterprises available. Unfortunately for longsuffering stakeholders, VZ happens to be one of the unloved value stocks. Since the January opener, shares fell almost 22%.
What may be more frustrating for investors is that there doesn’t seem to be an end to the volatility. In the trailing one-month period, VZ gave up nearly 8% of equity value. Factors such as fierce competition along with a troubled consumer economy have crimped Verizon’s business. However, for the extreme contrarian, VZ could be a tempting idea.
Right now, shares trade at forward earnings multiple of 6.63x, much lower than the telecom services sector’s median multiple of 13.15x. Plus, as a vital infrastructural player, Verizon enjoys consistent profitability.
Finally, analysts peg VZ as a moderate buy with a $39.45 target, implying over 25% growth.
I’m not going to get into the politics behind the ugly mess that Anheuser-Busch (NYSE:BUD) found itself in. Basically, Anheuser-Busch – via its popular Bud Light brand – wanted to promote a social equity message. However, opposing voices felt that the brewery and spirits company went a bit too far. Generally speaking, Americans don’t like to be lectured, no matter the topic.
So, given the vituperative nature of the debate, BUD became one of the unloved value stocks. And “unloved” would be putting it diplomatically. Fundamentally, though, I keep going back to the same point. Prior to the controversy, Bud Light consistently ranked as America’s best-selling beer. And even after the controversy, the brand fell to number two.
If you want controversy, that’s the real juice right there. How can something so awful ever be considered America’s best anything? Anyway, the point is that stateside consumers love Bud Light. So, this too shall pass. If anything, analysts are confident, pegging BUD a strong buy with a $69.73 target, implying about 28% upside.
Devon Energy (DVN)
An excellent choice for unloved value stocks in my opinion, Devon Energy (NYSE:DVN) is an independent energy specialist focused on hydrocarbon exploration. At first glance, DVN might seem unusually risky. After all, the political and ideological winds push for green and renewable solutions. In this context, Devon’s oil and natural gas exploration (upstream) business seems anachronistic.
However, increased demand for energy products from any source – from natural factors such as immigration – likely means hydrocarbons will remain relevant in perpetuity. Also, you must factor in geopolitics. With Saudi Arabia and Russia agreeing to production cuts throughout the end of this year, the decision proves the U.S. and its allies must seek energy independence.
In full disclosure, DVN did lose a significant amount of market value since the January opener. However, it’s also fair to point out that because of the red ink, DVN trades at a forward multiple of 6.51x. That’s favorably lower than 63.96% of the competition.
Analysts rate DVN a moderate buy with a $61.15 target, implying 31% growth.
Park Hotels & Resorts (PK)
One of the “adventurous” ideas for unloved value stocks – and by that, I mean risky – Park Hotels & Resorts (NYSE:PK) requires high conviction in the revenge travel phenomenon. As a real estate investment trust (REIT) focused on hotel properties, Park obviously needs strong tourism sentiment to thrive. In 2022, when pandemic-related restrictions began falling everywhere in earnest, Park appeared to enjoy a strong narrative.
Unfortunately, the catalyst stemming from collective cabin fever also encountered the Fed’s hawkish monetary policy. Subsequently, PK only gained a bit more than 3% in the past 365 days. In the past five years, PK dropped about 59%, an alarming loss to say the least. Still, if consumers want to have one last hurrah before hard times materialize again, I suppose Park could be interesting.
On paper, PK trades at 10.81x forward earnings. That’s super low compared to the sector median of 14.25x. Still, investment data aggregator Gurufocus warns that it may be a possible value trap. Analysts are more forgiving, rating shares a moderate buy with a $16.22 target, implying nearly 35% growth.
Turning to the riskiest ideas of unloved value stocks to consider, PayPal (NASDAQ:PYPL) is one of the first financial technology (fintech) enterprises. Specializing in online payment systems along with business management software for small businesses, PayPal symbolizes the grease that keeps the wheels of digital commerce turning. Therefore, its year-to-date loss of around 22% seems like a relative bargain to pick up.
Sadly, PYPL has been struggling for myriad reasons, including rising fintech competition. While that is a distraction, I’m also encouraged that PayPal has brand power. Both the new generation of tech and the old guard recognize the brand. That kind of trust may go a long way during uncertain market cycles such as this.
Also, PYPL does seem attractive based on specific metrics. For example, its enterprise-value-to-EBITDA ratio sits at 9.69X, favorably lower than the sector median of 19.59x. Even better, analysts dig it, pegging PYPL a moderate buy with an $87.07 target, implying 50% upside.
For all the talk about how electric vehicles will shift the paradigm of mobility and transportation, both the sector and certain related enterprises just haven’t performed that well, especially since the Fed began cracking down on skyrocketing inflation. Case in point is Albemarle (NYSE:ALB). A specialty chemicals firm, Albemarle operates three divisions, one of them being lithium.
Now, we all know how important lithium is to EVs (and other electronics). However, the market just hasn’t responded well to the underlying narrative. Since the January opener, ALB lost more than 20% of its equity value. Tellingly, early this month, KeyBanc analysts cut their price target on ALB to $254 from $291 (though they kept their “overweight” assessment).
To be sure, both the EV and the lithium markets suffer from challenges. If interest rates rise, that may add more pressure to the broader ecosystem. Still, if you want to gamble, ALB trades at a lowly 6.91x forward multiple. The last word goes to the analysts, who rate shares a moderate buy with a $257 target, implying 56% growth.
On the date of publication, Josh Enomoto 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.