7 Value Stocks to Buy While They Are Still Out of the Limelight
Although 2023 has witnessed a massive surge in relevant industries – most notably artificial intelligence – investors may want to consider value stocks to buy at the current juncture. Why? Basically, the good times probably won’t last forever.
Yes, the September jobs report came in much hotter than expected. Also, the U.S. GDP grew at a 4.9% annual pace, according to a CNBC report. Again, this metric follows a familiar theme that circumstances are better than expected. Under this framework, growth-oriented enterprises – not value stocks – should be the priority.
However, plenty of evidence points to a possible negative pivot. For one thing, inflation remains stubbornly high, crimping consumer sentiment. Further, mortgage rates continue to rise – recently surpassing the 8% mark – making homeownership practically inaccessible for median-income families.
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In my view – and you’re free to continue this discussion on my X account should you wish – growth-focused firms could suffer a correction. If so, you’ll probably want to keep your eyes on these value stocks to buy instead.
Photronics (PLAB)
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Based in Brookfield, Connecticut, Photronics (NASDAQ:PLAB) is a semiconductor photomask manufacturer. Critical for building advanced computer chips, photomasks enable the transferring of intricate patterns onto semiconductor wafers via lithography. Further, these patterns offer the layout of transistors, interconnects, and other integrated circuit (IC) components. Since the start of the year, PLAB has only printed a modest return.
What’s more, in the trailing month, PLAB has gone volatile, which on one angle is understandable. After all, the wider semiconductor industry – aside from certain AI-focused enterprises – has suffered demand headwinds. At the same time, we’re talking about a critical market. Further, geopolitical rivalries demand that western countries continue to invest in innovation.
Financially, PLAB trades at 9.48x trailing earnings excluding non-recurring items (NRI), well below the sector median of 22.33x. It should be a good deal based on the underlying importance of the business.
Right now, D.A. Davidson’s Thomas Diffely pegs PLAB a “buy” though without a price target.
United Rentals (URI)
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Headquartered in Stamford, Connecticut, United Rentals (NYSE:URI) is the world’s largest equipment rental company. As of 2022, United commands about 16% of the North American market share, which is phenomenal. Further, it owns about 4,700 classes of equipment totaling about $19.3 billion in original equipment cost. Since the January opener, URI popped into double-digit percentage territory, a solid showing.
Still, a discount may be offered. For one thing, in the trailing month, URI incurred some volatility, modestly de-risking its investment profile. On the financial front, URI trades at a forward earnings multiple of 9.75x. In contrast, the sector median runs a forward multiple of 12.85x. Additionally, the company features a price/earnings-to-growth (PEG) ratio of 0.78X, favorably below 72.13% of its peers.
Fundamentally, companies might not be willing to fork over capital to purchase equipment. Therefore, even though recession risks abound, the rental industry might do well. If so, that should help URI as one of the top value stocks. Analysts rate URI as a moderate buy with a $443.75 price target.
Darden Restaurants (DRI)
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Given the possible fading of the revenge travel sentiment, I could go either way with Darden Restaurants (NYSE:DRI). On the positive front, Darden features plenty of eateries that appeal to a wide consumer base. On the more affordable side, you have Olive Garden. For the higher-end culinary experience, you have Red Lobster (because lobsters are expensive) and Yard House.
However, it’s also possible that if economic pressures build, at some point, consumers will cook at home. Obviously, that would be bad news for a brand like Yard House. Still, I’ve got to look at the numbers. So far, Darden continues to expand the top line while keeping its profit margins stable against historical norms. As well, DRI trades at 17.85x trailing earnings, ranking favorably below 63.26% of the competition.
Looking at Fintel’s options flow screener, major traders are selling put options with a strike price of $150 expiring January next year. At least for the next few months, the floor could be $150. That makes it an intriguing idea for value stocks.
Subsequently, analysts peg DRI a strong buy with a $167.87 average price target.
Enerplus (ERF)
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Thanks to the rising demand profile of the hydrocarbon energy market, it’s difficult to find genuine value stocks to buy in this space. However, Enerplus (NYSE:ERF) could be one of the rare viable candidates. From its public profile, Enerplus is one of Canada’s largest independent oil and gas producers. It holds oil and natural gas properties in its home market as well as the U.S.
However, growth has been overall limited against a year-to-date framework. That’s despite oil-producing nations imposing a production cut through the end of this year. Nevertheless, demand should eventually rise based on normalization factors. For example, if more companies force their employees to return to the office, that alone could lift the demand for hydrocarbons.
On paper, the market prices ERF at a forward earnings multiple of 5.81x. Also, it’s worth pointing out that shares trade at 3.47X operating cash flow. In contrast, the sector median lands at 4.55X.
Analysts rate ERF as a strong buy with a $20.75 target, making it one of the top value stocks.
Taiwan Semiconductor (TSM)
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One of the most important chip-manufacturing companies in the world, Taiwan Semiconductor (NYSE:TSM) specializes in contract manufacturing and design. Per its public profile, TSMC (as it’s often abbreviated) represents the world’s second-most valuable semiconductor firm. It’s also the world’s largest dedicated independent semiconductor foundry. Basically, if anything happens to TSMC, we’re in serious trouble; hence the geopolitical standoff with China.
Now, I don’t want to get into the granularity of that topic. Suffice to say, though, the drama clouds an otherwise compelling long-term investment. Still, since the start of the year, TSM significantly outpaces the performance of the S&P 500. And even with this decent print, it ranks among the top value stocks to buy.
On paper, the market prices TSMC at only 14.41x forward earnings, favorably lower than 68% of its peers. Also, it features a modest PEG ratio of 0.75x, favorably lower than the sector median of 1.17x.
Among 10 analysts, eight of them rate TSM a buy with an average price target of $108.75.
Anheuser-Busch (BUD)
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At this point, we all know the story behind Anheuser-Busch (NYSE:BUD). Basically, the brewery ran short promotion featuring a social media influencer. However, many family oriented individuals and organizations took issue with the appropriateness of said influencer and the promotion. Some rifles, Kid Rock and overall commotion followed. Coincidentally (or subsequently?), BUD printed red ink for the year.
Nevertheless, BUD could also be one of the value stocks to buy. No, I’m not trying to stir the pot. I legitimately mean that. Okay, let’s be real. The underlying brand behind the controversy – Bud Light – tastes putrid. However, before the “crisis,” Bud Light used to be America’s best-selling beer. Right now, it’s number two. Factor in a recession, it’d probably jump to number one again.
Plus, it’s difficult to be angry at a single decision for so long. Therefore, I believe the forward earnings multiple of 15.16x is a genuine discount. Lastly, analysts peg BUD a strong buy with a $69.73 price target.
Kelly Services (KELYA)
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At first glance, Kelly Services (NASDAQ:KELYA) hardly seems a great idea for value stocks to buy. Sure, KELYA only gained modestly since the beginning of the year. In theory, that might mean that it has some room to run. However, as an employment staffing agency, Kelly isn’t particularly relevant. With the labor market so tight, anybody who needs a job can get a job.
Why bother with a headhunter that fleeces the flock? It’s a great question and probably explains why KELYA has been a modest performer. However, I don’t anticipate the labor market running so hot. Otherwise, the lesson in economics is that you can print money until your problems go away. I don’t think that’s going to work, which is why an employment agency that can help viable candidates get through the door may become exceptionally relevant.
Currently, KELYA trades at a forward earnings multiple of 10.07x, lower than the sector median of 12.85x. I think it’s a credible bargain given what could be around the corner fundamentally.
And finally, analysts rate shares a moderate buy with a $25.50 price target.
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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.
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