Great stocks to buy for value.
Growth stocks are once again beating value stocks in 2019. After years of underperformance by value stocks, the relative valuation gap between growth stocks and value stocks has grown even wider. But while the 2010s were dominated by growth, some investors are rotating toward value heading into 2020. Since Sept. 1, the Vanguard Value ETF (ticker: VTV) actually outperformed the Vanguard Growth ETF (VUG) by more than 2%. For investors hoping 2020 will finally be the year value shines, here are seven value stocks to buy with 2020 earnings multiples below 15, according to Morningstar.
United Rentals (ticker: URI)
United Rentals is the world's largest equipment rental chain, with roughly 900 locations in the U.S. and Canada. Analyst Scott Pope says United offers investors a compelling opportunity given the stock's valuation and the company's scale and growth advantages. United's aggressive acquisition strategy will continue to gain the company market share, provide synergy opportunities and increase United's pricing power over time. United has spent more than $8 billion on acquisitions in the past decade, growing its fleet to roughly 650,000 pieces of equipment. Mornignstar has a "buy" rating and $185 fair value estimate for URI stock.
Cimarex Energy Co. (XEC)
Cimarex is a U.S. shale oil and gas pure-play, holding assets in the Permian and Anadarko basins. Analyst Jeffrey Stafford projects 2020 production of 280,000 barrels of oil equivalent per day, $1.8 billion in earnings before interest, taxes, depreciation and amortization and $17 in cash flow per share. Cimarex management has taken a conservative approach to its balance sheet, keeping leverage down while allowing the company to focus on long-term value creation for investors. Morningstar has a "buy" rating and $64 fair value estimate for XEC stock.
Albemarle Corp. (ALB)
Albemarle is a specialty chemical company that is one of the world's largest and lowest-cost lithium producers. Analyst Seth Goldstein says management has shifted gears to focus on cost reduction and capital discipline. Lithium already accounts for roughly half of Albemarle's profits, and the company plans to expand its production capacity from about 65,000 metric tons as of 2018 to 155,000 metric tons by 2022. Goldstein says the stock is significantly undervalued given the company's profitability and its exposure to electric vehicles and energy storage. Morningstar has a "buy" rating and $120 fair value estimate.
L Brands (LB)
L Brands is an intimate and personal care company and the owner of popular brands such as Victoria's Secret and Bath & Body Works. Analyst Jaime Katz says Bath and Body Works has been a reliable growth source while Victoria's Secret lagged. Bath and Body Works' third-quarter same-store sales growth of 5% was especially impressive. While the retail sector has been extremely challenging in recent years, the intimates and beauty categories aren't as crowded as some of the other categories that are struggling. Morningstar has a "buy" rating and $42 fair value estimate for LB stock.
Hanesbrands is a market leader in basic innerwear. Analyst David Swartz says activewear and international sales were particularly impressive in the third quarter. The company is targeting $3 billion in Champion sales in the long term, up more than 50% from the $1.9 billion the brand is on track to generate this year. Hanesbrands is expanding outside the U.S. innerwear market to other territories and categories with better growth prospects. Hanesbrands' cash flow also creates opportunity for capital returns. Morningstar has a "buy" rating and $28 fair value estimate for HBI stock.
Mall retailer Macy's faces tremendous headwinds, including lack of a distinct competitive edge. Swartz says Macy's also owns way too much floor space to maintain. However, Macy's could monetize some of that real estate via asset sales and invest the proceeds in growing its online business or increasing its capital returns. Macy's has a 6.5 forward earnings multiple and pays a 9.9% dividend. Macy's payout ratio of just 48.7% suggests it has the cash flow to support its dividend. Morningstar has a "buy" rating and $27 fair value estimate for M stock.
ViacomCBS began trading earlier this month following the completion of the media mega-merger between Viacom and CBS. Analyst Neil Macker says the new company will face stiff competition, but its valuable portfolio of sports rights, popular programming and cable networks make the company an attractive investment. Macker says the value of high-quality TV content will likely continue to rise, making the ViacomCBS TV studios particularly attractive. The new company's management will improve focus, build brand and content value, improve flexibility and identify deal synergies. Morningstar has a "buy" rating and $77 fair value estimate for VIAC stock.
The best value stocks to buy in 2020:
-- United Rentals (URI)
-- Cimarex Energy Co. (XEC)
-- Albemarle Corp. (ALB)
-- L Brands (LB)
-- Hanesbrands (HBI)
-- Macy's (M)
-- ViacomCBS (VIAC)
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