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3 Value Stocks for Conservative Investors

Steve Symington, Rich Smith, and Sean O'Reilly, The Motley Fool

With so much volatility on any given day, the stock market might seem like too risky a place for conservative investors to put their money to work. But the smartest investors know that it doesn't have to be that way. By focusing on so-called "value stocks" -- or those that are attractively priced relative to their true worth -- you can do plenty to stem those risks. 

To that end, we asked three top Motley Fool investors to each pick a value stock that they believe is ideal for conservative investors. Read on to see why they chose Visa (NYSE: V), AT&T (NYSE: T), and Citigroup (NYSE: C).

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IMAGE SOURCE: GETTY IMAGES.

Everywhere your portfiolio wants to be

Steve Symington (Visa): Between Visa's massive network, steady capital returns, and the increasing ubiquity of cashless payments worldwide, it's hard to find a safer stock than the financial services leader.

To be sure, investors can rest easy knowing that roughly 85% of all global retail payments are still made in cash and check, leaving Visa with an enviable runway for long-term growth. The company is effectively capitalizing on the opportunity. Revenue last quarter climbed 14%, helped by a 10% increase in payments volume, 10% cross-border volume growth, and 13% growth in total processed transactions. Adjusted earnings per share also climbed a healthy 15%.

Visa expects that strength to continue, offering guidance for next year's revenue to climb in the high-single-digit percent range, with growth in adjusted earnings per share in the 16% to 17% range.

What's more, Visa most recently boosted its quarterly dividend payout by 18%, to $0.195 per share. That's good for a modest 0.7% annual yield at today's prices, but investors can likely expect more double-digit increases given Visa's hearty growth and its history of rapidly increasing its dividend along with earnings.

So while shares of Visa might not look particularly "cheap" trading at around 23 times this year's expected earnings, I think that's a fair price to pay with so much to like about this high-quality business.

Content and distribution

Sean O'Reilly (AT&T): AT&T's shares have had a rough year, down about 19%, as the market has lost faith in its ability to grow while also managing its sizable debt load. The bears have a point. Third-quarter earnings were a mixed bag. Subscribers to its U-Verse cable service fell by 90,000 so cord-cutting remains a problem. But the news wasn't all bad. AT&T added about 300,000 subscribers to its DirectTV Now service. Management has also noted that it expects its wireless to hold steady in spite of fierce competition from T-Mobile. Its $444 billion balance sheet is weighed down by $318.9 billion in liabilities ($155 billion of which was long-term debt). Net income for the quarter was $3.029 billion, down from Q3 2016's $3.33 billion.

But fear not. For value investors, there is substantial evidence that this storm will pass. In fact, the market is ignoring a few key factors that make AT&T a steal.

Free cash flow for the first nine months of 2017 amounted to a whopping $13.55 billion, well above the $5.122 billion in FCF generated in FY 2016. And while leverage is a problem, it's nothing compared to Verizon's debt-to-assets ratio of 89.46% as of Sept. 30, 2017. And to top it all off, AT&T's shares trade at 1.69 times book value, below its 1.9 average of the last five years.

Finally, AT&T is in the midst of a proposed acquisition of Time Warner. If consummated, it would make AT&T not only the largest telecommunications company in the U.S. but a juggernaut of content as well. In a world where "cord-cutting" is a buzzword, content is king. An AT&T/Time Warner combination (even with significant divestitures) would be a content and distribution powerhouse.

As icing on the cake, shares sport a 5.68% yield. AT&T is therefore an excellent choice for any value-minded investor.

An obvious bargain in banking?

Rich Smith (Citigroup): Looking for bargains in the stock market doesn't have to be hard. Sometimes, the bargains are sitting right out in the open. That's the case with Citigroup.

Historically, price-to-book value has been one of the first places people look to find bargains in banking, and Citigroup's P/B ratio is looking awfully cheap. Priced at just 0.9 times book, Citigroup is the only one of the four U.S. megabanks (Bank of America, JPMorgan, Wells Fargo, and Citi) that can be bought for less than book today.

Despite being the fourth-biggest bank in the U.S., and to some minds therefore "too big to fail," Citigroup sells for a big discount to the average 1.4 times book valuation of banks represented on the KBW Bank Index. Valued on earnings as well, Citigroup looks cheap, costing less than 14 times trailing earnings versus a KBW average valuation of 16.8.

Why is Citigroup stock so cheap? Some investors argue that its global business model, in which 53% of revenue comes from outside North America, makes Citi riskier than other, more U.S.-focused large banks. Personally, though, I think Citigroup's decision to do business around the globe makes it a more conservative, more diversified choice for banking investors -- and so long as the developing world keeps growing faster than the U.S., I think it's the right business model for Citigroup to pursue.

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Rich Smith has no position in any of the stocks mentioned. Sean O'Reilly has no position in any of the stocks mentioned. Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Visa. The Motley Fool recommends Time Warner. The Motley Fool has a disclosure policy.