For more than 12 years, growth stocks have been talking about them on Wall Street. Historically low lending rates and the accommodating monetary policy of the country’s central bank have paved the way for fast-paced companies to borrow at attractive rates.
But over the very long term, value stocks have outperformed growth stocks. A study of Bank of America/ Merrill Lynch found that value stocks generated an average annual return of 17% between 1926 and 2015, compared to an annual return of 12.6% for growth stocks during the same period. While investors are unlikely to complain about double-digit annualized returns, it’s worth noting that value stocks have been the go-to place during economic recoveries and booms.
As we move into the fourth quarter, the following three value stocks stand out for all the right reasons and have the potential to make shareholders much richer in the short term and, most importantly, well beyond.
Bristol Myers Squibb
First, we have what is arguably the cheapest Big Pharma share on the planet, Bristol Myers Squibb (NYSE: BMY).
Before I dive into the details of Bristol Myers, I think it’s important to cover the safety inherent in most healthcare stocks. Since we cannot choose when we get sick or what diseases we develop, the demand for prescription drugs, medical devices, and health services tends to remain stable, regardless of how the economy and society perform. American stock market. This creates a stable cash floor for established healthcare businesses.
As for Bristol Myers Squibb, it has two major catalysts that fuel its proverbial engine. First, the company’s internal drug development program has been very successful. Eliquis, which was developed in cooperation with Pfizer, became the world’s leading oral anticoagulant and will reach $ 10 billion (or more) in sales by 2021.
But it is the cancer immunotherapy Opdivo that may offer even more promise. Wall Street has been dragging its heels on Opdivo since failing to hit the target in an advanced lung cancer study in 2018. Yet analysts seem to be forgetting that Opdivo already has 10 approved indications to United States and that it is being examined by the dozen. clinical trials as monotherapy or in combination. There’s a good chance Opdivo’s label will grow over time, which will only add to the $ 7 billion in sales it generated last year.
The acquisitions are the second catalyst for Bristol Myers Squibb. At the end of 2019, he entered into a cash and stock deal to buy the pharmaceutical company Celgene, which specializes in cancer treatment and immunology. The multiple myeloma drug Revlimid was the real price for this acquisition.
Revlimid has grown its annual sales by a double-digit percentage for over a decade, with increased uptime, strong pricing power and opportunities for label expansion in its sails. Best of all, Revlimid won’t face a wave of generic competition until after January 31, 2026, which means Bristol Myers still has years to reap the rewards of this key anti-cancer drug.
Priced a bit north of seven times Wall Street’s projected earnings for 2022 and paying a 3.3% return, Bristol Myers Squibb looks like an absolute theft.
AGNC Investment Corp.
Do you want a valuable stock that is a little more discreet than a giant pharmaceutical stock? Take a look at the Mortgage Real Estate Investment Trust (REIT) AGNC investment company (NASDAQ: AGNC).
While the mortgage-REIT industry may seem complicated, given the various classifications of securities they carry in their portfolios, this industry can be quickly debunked in just one sentence. Mortgage REITs simply seek to borrow capital at lower short-term lending rates, which can then be used to purchase higher-yielding long-term assets, such as mortgage-backed securities (MBS).
The difference between the average yield received from the MBS held by a mortgage REIT, less its average borrowing rates, is known as the net interest margin. The larger the net interest margin, the greater the profit potential of mortgage REITs.
The current place in the economic cycle in the United States makes AGNC particularly intriguing. Traditionally, a flattening yield curve – a situation in which the spread between short-term and long-term Treasury yields narrows – and / or a rapidly changing Federal Reserve is bad news for mortgage REITs. Conversely, a steepening yield curve and a slowly changing central bank are a recipe for book value expansion for companies like AGNC Investment Corp.
Virtually every rebound in a recession over the past half-century has been accompanied by a steady steepening of the yield curve. It looks like the table has been set for AGNC’s business to flourish.
Another factor that works in AGNC’s favor is the company’s emphasis on agency-backed MBS. The securities of the agencies are guaranteed by the federal government in the event of default. While this additional protection reduces the return AGNC receives from its MBS, it also allows the company to leverage its bets to increase profitability.
The bottom line for investors is that they can buy shares of AGNC Investment right now for about six times the expected profits for next year and 9% below its book value. With a 9.1% dividend yield to boot, it ticks all the boxes for value (and income) investors.
Alliance of Walgreens boots
Returning to the healthcare space, the third valuable stock crying out to be bought and owned in Q4 and beyond is the drugstore chain Alliance of Walgreens boots (NASDAQ: WBA).
Unlike Bristol Myers, Walgreens was among the small number of healthcare companies that have been affected by the coronavirus pandemic. Pharmacies rely on foot traffic in their stores to drive initial sales and discretionary purchases. With reduced consumer activity, Walgreens and its peers saw the negative repercussions of the pandemic in 2020 and early 2021.
However, the good news is that Walgreens aggressively implemented a multi-point turnaround plan designed to cut costs and reallocate capital to higher margin or faster growing opportunities.
By the end of fiscal 2022, the company appears to be on track to achieve more than $ 2 billion in annual savings. But it is also largely spent on digitization. Although Walgreens’ brick and mortar stores are its primary revenue generator, online sales can sustainably grow by a double-digit percentage for years to come.
As a shareholder of Walgreens Boots Alliance, I am very excited about the company’s partnership with VillageMD, which was first announced in July 2020. The duo will open up to 700 full-service co-located clinics in the Walgreens stores in over 30 US markets.
While most in-store clinics are limited to administering vaccines, Walgreens will have offices staffed by doctors. This business is expected to drive repeat businesses locally, as well as channel patients directly to Walgreens’ higher margin pharmacy.
Value investors have the option to gobble up Walgreens shares for about nine times the Wall Street consensus earnings for 2022, and they will earn a 4.1% dividend yield while waiting for the market to come to its senses.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.Source link