3 Value Stocks That Are Good Buys

There are a lot of overvalued stocks in the market right now. As great as Neflix’s (NFLX) and Amazon’s (AMZN) business models are I would not touch either stock because of their massive valuations. I would never pay 50 times earnings for any company. These companies trade well above those levels. I prefer to shop in the value section of the market. Here are a few companies that are looking like decent value stocks.

Value Stocks

 

AOL (AOL)

I wrote a post about AOL last week. I felt like the stock was finally a potential buying candidate between $17 to $18. AOL is almost in the sweet spot having dropped to $19.30 a share. The media company is now trading below book value, sales, and earnings growth. At just 3.1 times Enterprise Value/EBITDA, AOL is almost worth a shot. I never thought the day would come that I would say that AOL is a potential buy.

Hewlett Packard (HPQ)

At $41 a share Hewlett Packard is a pretty good buying opportunity. I like the stock at these levels. If it falls to the 30′s, the stock is an absolute steal. As it is you are only paying 7.8 times earnings. $12 billion or more in operating cash flow generated each year leaves a whole lot of room for more dividend increases.

Ford (F)

I have already stated why I am a fan of Ford’s stock in the past. Investors are getting a great opportunity to buy shares of Ford for $15. The stock trades at just under 8 times earnings and has tremendous growth potential over the next few years. In my opinion long term shareholders will be rewarded as Ford has been making all of the right moves to broaden its appeal in North America and Asia.

Are there any stocks that you think are looking like good values right now?

Comments

  1. avatar Richard says:

    A few names that I’ve picked up:

    JPM/WFC: Either of these 2 big banks would be a good choice for someone who believes housing has bottomed. They have solid risk management and are growing their profits now. Revenue may consolidate, but there’s room for the dividend to expand. Buffett has bet big on WFC, but JPM is cheaper on P/B and FP/E basis.

    TEVA: Oversold on rival drug concerns. This is the generic king in an industry that’s shifting that way due to government cost pressures. Also, the FDA just doesn’t allow generic manufacturing from just anyone. TEVA has done the legwork in setting up plants according to their standards. They also have the advantage of volume production. Partnership with P&G should be fruitful. Is also cheap on a P/E basis (though that metric can be misleading for generic firms, whose earnings can sometimes be volatile). Pays a small dividend with room to grow. Is a decent buy even now.

    If you look overseas, TEF and FTE can be good choices. They’ve been pounded by the Eurozone mess, but both are solid yielding utilities. TEF has strong Latin America operations that should compensate for weakness in Spain. One concern would be possible Euro collapse causing currency conversion losses.

    Of your picks, my bias is to HPQ. That’s definitely a good entry below $40. The company has corporate mindshare and is just too cheap right now.

    • avatar Mark says:

      I am a JPMorgan Chase and Wells Fargo shareholder. I think that the financials are incredibly cheap. I have mentioned them so many times that I tried to find a new sector. I have dabbled in TEVA Pharmaceuticals a few time. The stock has lots of upside but always seems to be a favorite of shorts.

  2. avatar optionsdude says:

    I think these are wonderful ideas, Mark. I don’t own any of them but had been watching Ford for awhile and am impressed by the turnaround that they made prior to the financial crisis which kept them from feeding at the government trough. I own DRYS and am hoping that it represents value. It is risky for sure. The BDI is low and there is a lot of shipping capacity scheduled to come online in the next 12 months. Despite that, I think when the economies of the world seriously recover in the next 3-5 years, then the inflation and trade that comes along with it will lift valuations. DRYS also has their oil rig division that will be spun off sometime this year which could unlock value prior to a shipping recovery.

  3. AOL and HPQ are in the fast pace business of internet and technology … Not sure I would consider them buy and hold. They could be short term buy but it would be attempting to time the market… On the other hand Ford has been quite interesting and showing strength amongst the car companies. I can’t say that they are on my watch list though.

    • avatar Mark says:

      I would feel comfortable owning Hewlett Packard for the long term. AOL is finally getting cheap to me.

      • avatar Richard says:

        It’s interesting that most of our biases are to fields that we understand. Personally, I’m a lot more knowledgeable about technology and health care, having worked or am working in both of those fields, than I am about cars, missiles, utilities, or exotic niche energy firms.

        On that note, of the two tech companies, I like HPQ a lot better than AOL. I don’t think there’s a cheap enough price for me to want to buy AOL ever. The company just doesn’t seem to have a moat, product, or much of a future. Media is notoriously easy for revolutionary changes to take root. Social media is just now displacing these old firms just as happened to newspapers, TV stations, and radio.

  4. I like the mention of TEVA above. I already own TEF and TOT, so I don’t want too many ADR’s in my portfolio, but TEVA seems like a great play right now, and the dividend growth is phenomenal, if you can get over the low entry yield. As the population gets older there will certainly be a large demographic going to generics.

    I have thought about adding more TEF. I have a handful (40) of shares right now, but it might not be a bad idea to double my position now. I originally planned on TEF being a small position but the yield is absolutely huge, and they have already committed to raising it for 2012.

    The banks, as mentioned above, are value plays. But they might also be value traps. My head spins when I try to read into some of the big bank’s financials. I might see where things go with WFC and the like.

    • avatar Mark says:

      Financials are next to impossible to value. I was buying Wells in the teens and just thought it was too good a value to pass up.

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