Finding the best value stocks to buy involves thinking beyond the flashiest names in the stock market, and instead thinking about the substance behind those brands.
Value stocks are sometimes called “cheap stocks” not because they are only $1 or $2 per share (they’re often not), but rather because they are seen as discounted to their underlying value.
Or, as it was put much more simply by the iconic investor Howard Marks of Oaktree Capital: “It’s not what you buy; it’s what you pay for it.”
Value investing is a religion to many folks, the same way bargain hunting at flea markets or coupon clipping is to others. There’s a pride that value investors have about analyzing the true worth of a company. You sometimes need to have more interest in numbers than in flashy marketing pitches or product launches. But if this is something that appeals to you, then value investing is definitely worth considering.
In this article, I’ll teach you the basics of value stock investing, as well as provide a few of the best value stocks across different sectors that exemplify this approach, with an eye toward 2024.
Disclaimer: This article does not constitute individualized investment advice. These securities appear for your consideration and not as investment recommendations. Act at your own discretion.
Table of Contents
What Is a Value Stock?
A value stock is a company that is perceived to be trading below some sort of intrinsic value. This is markedly different from many growth stocks, which typically trade at inflated market values based on investor interest or future growth potential.
Value stocks are often boring or steady names with established businesses, whereas a growth stock is likelier to be some flashy name with big ideas but no profits or tangible assets to speak of. Sure, flashy names are definitely interesting to watch. But they are simply not opportunities that most value stock investors would even consider, given their reliance on the promise of future growth rather than tangible value today.
So what’s the easiest way to separate a true value stock from overhyped pretenders? There’s no hard and fast rule, but there are a few metrics to watch, including:
– Price-to-earnings ratio: Stock prices should be based on something. One popular way is by normalizing the price per share by earnings per share to see how “cheap” or “expensive” the stock is vs. its peers. Price-to-earning (P/E) ratio can be backward-looking (usually the past 12 months’ worth of financials), though more useful is forward P/E, which looks ahead toward estimates for the coming year. For context, the average forward P/E of the S&P 500 lately is roughly 19.
– Price-to-sales ratio: Since profitability sometimes isn’t the best indicator, another point of reference worth considering is the market value of a stock when compared to its revenue. Value stocks typically trade for only about 2X their sales, while high-growth stocks can sometimes trade at price-to-sales (P/S) ratios of 10 or even 20. That’s a big risk if those sales don’t come in as expected.
– Dividend yield (and payout ratio): Value stocks have tangible and consistent profits, so it’s natural that they also share those profits with investors. Thus, many value stocks are also dividend-paying stocks. But don’t just go chasing a high yield—some dividend stocks offer unsustainable payouts that are at risk of being cut down the road. Compare the annual dividends paid to the earnings per share to make sure the company in question isn’t overstretched; generally, paying out 70% of profits via dividends leaves enough wiggle room. But a healthy payout ratio might differ from one industry to the next.
– A company’s stock price trend: Generally speaking, value stocks are less volatile. That’s not always true, as the broader environment or unexpected headlines can upset even the most stolid blue chip. But over the long term, this is true of most value stocks.
Does a Low Stock Price Mean a Good Stock Value?
It’s worth noting here that there are both good value stocks, as well as “value traps” that are cheap for a reason. Think about the difference between buying a hidden gem at a flea market vs. a piece of junk that’s better off in the trash.
For instance, some stocks trade for very low price-to-earnings or price-to-sales ratio because Wall Street is expecting the actual numbers to come in much lower in the years ahead. If the experts are proven right, the stock isn’t a bargain at all. Rather, it has been discounted because it isn’t as valuable as it used to be.
Just as growth stocks can sometimes be valued based on their future operations instead of their current results, value stocks can also be valued based on their outlook—and if that outlook is grim, investors might not put much weight in current profits that are likely to vanish over the next year or two.
However, sometimes a bit of bad news results in a temporary short-term headwind, and value investors are often the first to swoop in for bargain purchases when that happens. Just be careful: It can be difficult to tell the difference between a stock that’s priced low for a reason, and a true bargain value investment.
How Do Value Stocks Differ From Growth Stocks?
Small biotech companies researching a potential cancer cure or tech startups developing a potential artificial intelligence (AI) gamechanger could become billion-dollar giants … or they might disappear overnight if their plans don’t pan out.
These are fundamentally “growth stocks” that are dependent on revenue and earnings growth that will justify their share price. Just think about a company like Tesla (TSLA) that debuted on Wall Street in 2010 even though it was unprofitable and had only manufactured less than 2,000 cars before going public and had a mere 4,000 additional pre-orders on the books. It was a risky bet to be sure, but now Tesla is the envy of the entire EV industry and cranks out millions of cars—and has made early investors a bundle along the way.
Value stocks can make a bundle for investors, too, but in a very different way. They’re more likely to be companies such as traditional automakers with deep pockets and tons of hard assets like production facilities. Sure, it might be impossible for an automaker like Volkswagen to double, considering it is already the world’s No. 1 automaker with about $300 billion in revenue and nearly 9 million vehicles sold annually. But growth isn’t the appeal here … rather, the underlying value and established operations of Volkswagen is the draw.
Lastly, value stocks and growth stocks don’t always have to be opposites. From time to time, Wall Street will underestimate a high-growth firm, and as a result, you’ll have a growth stock trading at value prices.
The Best Value Stocks to Buy Now
As you’re looking for the best value stocks to buy, think about the long term. Wall Street’s gyrations can sometimes mask the true value of an investment for a little while, but eventually things will reflect the reality of its balance sheet once more.
Or as iconic investor Warren Buffett once wrote, “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.”
The following seven stocks are all good examples of value stocks with real weight.
Best Value Stock #1: Archer-Daniels Midland
– Market cap: $40.2 billion
– Dividend yield: 2.4%
– Forward P/E: 11.1
– Sector: Consumer staples
Agricultural giant Archer Daniels Midland (ADM) has a few direct-to-consumer brands, but its biggest source of cash comes from wholesaling ingredients for food, feed, energy, and industrial customers worldwide. These include both edible and inedible oils, flours and grains, plant-based proteins, and other ingredients.
This is a great example of the kind of company that is often associated with value stock investing. While processing and shipping of grains isn’t particularly glamorous, and it’s hard for ADM to grow exponentially like a tech startup, this stock has big market share for an in-demand business. That means it has staying power and a store of underlying value for shareholders.
As proof of its consistency across any environment, in November, this ag leader announced its 368th consecutive quarterly dividend payment. Additionally, the dividend has more than doubled over the last decade, from 19 cents per share in 2013 to 45 cents presently. That’s a track record long-term value investors should be instantly drawn to.
Besides, ADM isn’t exactly standing still. Archer Daniels Midland’s revenue has grown impressively over the past few years, from i$64 billion in 2018 to forecasts of roughly $96 billion this fiscal year. That scale, coupled with modest growth, is a great thing to see.
Best Value Stock #2: Johnson & Johnson
– Market capitalization: $384.4 billion
– Dividend yield: 3.0%
– Forward P/E: 14.6
– Sector: Healthcare
Johnson & Johnson (JNJ) is a healthcare powerhouse with tremendous staying power. It is among the 20 largest U.S. corporations by market capitalization, has been in operations for nearly 140 years, and is one of just two companies with a tip-top credit rating of AAA—tech titan Microsoft (MSFT) is the other. It also has an amazing track record of dividend growth, increasing its payouts for each of the last 60-plus years.
Massive scale, rich history, amazing creditworthiness, and consistent income potential … those are definitely boxes that value investors like to check. And Johnson & Johnson has them all.
JNJ is perhaps best-known for its consumer health division, which includes Tylenol and Band-Aid products. Ironically enough, the company just spun off this division into the publicly traded Kenvue (KVUE), though it still holds a 9.5% stake.
The remaining Johnson & Johnson produces medical devices, prescription drugs, and vaccines. That makes it a diversified health care operator—and considering the consistency of healthcare spending along with demographic tailwinds lifting long-term demand for the sector, JNJ stock is in great shape for the years ahead.
There’s admittedly a bit of a dark cloud hanging over JNJ stock as a result of ongoing litigation concerning its now-discontinued baby powder. But this uncertainty has resulted in soft share prices, which might provide a long-term buying opportunity for value-oriented investors who are more interested in measuring JNJ stock over the next several years vs. the next few months.
Best Value Stock #3: JPMorgan Chase
– Market capitalization: $453.8 billion
– Dividend yield: 2.9%
– Forward P/E: 10.3
– Sector: Financials
Another company with deep roots, the beginnings of JPMorgan Chase (JPM) can be traced back even farther than J&J to 1799.
This is not to say the best days of JPM are behind it, however
You can chalk up JPMorgan’s longevity to its organic growth and shrewd management, but also aggressive deal-making that has helped it tighten its grip over the years. Consider that during the worst of the financial crisis, it purchased both Bear Stearns and Washington Mutual at fire sale prices. More recently, in 2023 it snapped up regional bank First Republic. You have to have a rock-solid balance sheet to absorb troubled operations like these during challenging times—but JPMorgan has come out even stronger for moves like these.
As one of the 20 largest U.S. corporations by market value, JPMorgan is a dominant force on Wall Street—and one of the most respected financial institutions in the world.
As the icing on the cake, income-oriented investors should also consider the stock’s dividend history. While peers Bank of America (BAC) and Citigroup (C) were gutted by the financial crisis, JPM not only held tough but quickly surpassed prior highs in both share price and quarterly dividend payouts. Consider that in 2008 it was paying $1.52 annually, and by the end of 2014 it had paid $1.56 per share. Now, it pays $4.00 per share annually as of 2023. Consistency over those very volatile years are a great sign that this value stock is worth owning, no matter what the future holds.
Best Value Stock #4: Phillips 66
– Market capitalization: $56.9 billion
– Dividend yield: 3.2%
– Forward P/E: 9.4
– Sector: Energy
Energy stocks can be volatile based on day-to-day pricing of crude or gas. But Phillips 66 (PSX) is primarily a “midstream” natural gas transportation firm and oil refinery, meaning its main source of revenue is taking in crude oil and turning it into other usable petrochemical products including gasoline for cars. That offers consistency, with a wide moat and at a scale that is difficult for other businesses to match.
Spun out of ConocoPhillips in 2012, Phillips 66 has become even more focused and entrenched after moving away from the production-focused business of its prior parent. While oil explorers have been having a good run in the last year or two thanks to rising crude prices, that shouldn’t overshadow value stocks in the energy sector like PSX that deliver less flashy but more reliable results over the long term.
It’s also worth noting that Phillips 66’s first dividend as an independent firm back in 2012 was 20 cents per share; PSX now pays more than five times that at $1.05 quarterly. This generous history is something value investors might also be drawn to.
Phillips 66 has largely moved alongside the broader stock market in the last year, but longer term it is challenging prior all-time highs set back in 2018. That kind of sustained uptrend is proof that this is not just your typical oil stock banking on inflationary pressures, but rather a company with staying power.
Best Value Stock #5: Southern Co.
– Market capitalization: $78.0 billion
– Dividend yield: 3.9%
– Forward P/E: 17.8
– Sector: Utilities
Southern Co. (SO) is one of the largest publicly traded utility stocks on Wall Street, with a massive electricity distribution network as well as a thriving natural gas business. All told, it has nearly 9 million total customers across the Southern U.S.
Utilities are one of the most stable investments out there given that they’re effectively legalized regional monopolies, with a capital-intensive operation that prevents competition and highly regulated structures that make disruption to their underlying model all but impossible.
There’s not a ton of growth, to be sure, but value investors are drawn to this rock-solid reliability. They also should find the income potential appealing, as the regular monthly utility checks from customers help fuel consistent dividends back to shareholders. Furthermore, in the case of SO, payouts are only about 70% of projected profits next fiscal year and thus very sustainable for the foreseeable future.
Some investors have soured on Southern stock over the last several years thanks to hiccups with its large scale nuclear efforts, dubbed the Vogtle Project. Two nuclear reactors, while approved for construction way back in 2012, have been taking much more time and money than expected. But the good news is that the project is finally nearing the finish line and the reactors should be up and running in 2024—marking the first newly constructed nuclear units built in the United States in more than three decades, and helping to wean SO off fossil fuels to future-proof its business in the age of climate change.
Best Value Stock #6: Sysco
– Market capitalization: $37.0 billion
– Dividend yield: 2.7%
– Forward P/E: 16.6
– Sector: Consumer staples
Though not as recognizable as the brands you find in the grocery store aisles, Sysco (SYY) is indirectly a mainstay of most consumer budgets in the U.S. That’s because it is one of the largest foodservice companies in the U.S., serving eateries of all shapes and sizes. Sysco provides everything from meat and products to kitchen appliances and utensils.
This gives SYY the enviable position of being at the center of the restaurant business with a measure of diversification that investors can’t find by buying stock in the eateries themselves. This allows it to tap into opportunities faster and sidestep disruptions with more agility. As proof, consider Sysco snapped back much more quickly than other stocks that were hit harder by COVID-19 restrictions. In fact, in roughly a year, SYY stock had raced back to prior highs by spring 2021 thanks to its massive and efficient distribution network.
It’s also worth noting that Sysco has provided 55 years of consecutive dividend growth, crossing plenty of bad times for U.S. consumers along the way. This is proof of a long-term commitment to shareholders and a strong balance sheet that can weather any short-term troubles in the stock market.
Best Value Stock #7: Walgreens Boots Alliance
– Market capitalization: $17.9 billion
– Dividend yield: 9.2%
– Forward P/E: 6.2
– Sector: Consumer discretionary
While the prior staples stock might be considered a bit more discretionary in nature, Walgreens Boots Alliance (WBA) is a so-called discretionary stock that leans heavily into necessities.
Walgreens isn’t exactly a mainline retailer, but instead heavily reliant on consistent and regular drug sales to patients through its pharmacies.
WBA operates about 8,900 retail locations under the Walgreens and Duane Reade brands in the U.S. and about 4,000 more under the Boots and other nameplates internationally. And increasingly, WBA is also getting into more direct forms of health care, with optical clinics and urgent care services provided in its brick-and-mortar locations, too.
Walgreens admittedly has been through some tough times lately, which is part of the reason its dividend is so elevated (and its P/E ratio is so low) when compared with other stocks on this list. This pick does come with some risks—specifically, the potential for a dividend cut if Walgreens’ cash generation doesn’t get back on track soon.
But the scale and dominance of WBA, coupled with recent restructuring moves, should give value investors hope for the very long term. It’s definitely a bit more aggressive than other names on this list, but it’s a good example of the kind of beaten-down bargain that might be worth a look—if not necessarily today, then later when there’s more clarity surrounding the dividend.
Value Stocks: Frequently Asked Questions (FAQs)
Should I buy value stocks or a value exchange-traded fund?
Exchange-traded funds, or ETFs, provide a diversified way to play the stock market in one single holding. And perhaps unsurprisingly, there are a host of ETFs that seek to provide groups of value stocks in one place.
Diversification is definitely something to consider, but also keep in mind that it’s difficult to apply the same screening methodology on an ETF that you do on individual stocks. So if you care about popping the hood and looking around for yourself, investing in individual stocks might be preferable—even if it’s a bit more work.
How much of the stock market is made up of value stocks?
It’s hard to say for certain. For example, there are many value-oriented ETFs out there, and some have hundreds more holdings than their peers. But generally speaking, Wall Street can be thought of in thirds—one-third true “growth” stocks, one-third true “value” stocks, and another third that is in the blended area between the two.
What kind of brokers handle value stocks?
The good news is, virtually any traditional broker is going to allow you to buy value stocks. As long as equities are on the table–and that’s the case with virtually all online brokers—you’ll be able to buy any style of stock: growth, value, dividend, you name it.
You can check out our favorite online brokers for beginners for a full list of options, but here’s one of our favorites:
Plynk Invest (Best Investment App for Beginners)
– Available: Sign up here
– Best for: Beginner investors
– Price: Start for free. Some features may require a fee in the future. Fees apply to individual crypto trades.
Plynk™ is an app designed to help you start investing and learn along the way, and they’re currently offering a $10 account sign-up and $75 net deposit bonus ($85 combined).
The Plynk app helps investors put their money into an investment portfolio. You can invest with as little as $1, and trade stocks, funds, and crypto commission-free**—all in one app. The platform uses straightforward, easy-to-understand language to explain investing concepts. No jargon. No complex charts and tables. Just simple-language tips and how-tos.
Navigate investment ideas with tools to help you explore and choose. With Plynk Explore, just answer a few questions, and the app will display stock, ETF, and mutual fund investments that mesh with your investment comfort zone.
If this sounds interesting to you, consider opening an account with Plynk. To make it more worth your while, they have a few special offers.
Simply open an account and link your bank account to get a $10 sign-up bonus. Plynk is also offering a special bonus promotion through Feb. 15, 2024. For a limited time, make a deposit and Plynk will double it up to $75. Customers must have a minimum of $25 in net deposits during the promotional period to receive a match. That means you may be eligible for up to $85 in sign-up bonuses from Plynk by taking qualifying actions.
Fees apply to individual crypto trades.
Minimum $10 gift card balance required. Fees apply to use program which vary by vendor. To receive Plynk Net Deposit Match Promotion, customers must have a minimum of $25 in net deposits during the promotional period. Limited time offer. Terms and conditions apply. Visit plynkinvest.com/disclosures/promotions. Recurring investments do not ensure a profit or protect against loss.
The Plynk® app provides access to two different types of accounts, brokerage and crypto. Brokerage accounts and related information and services are provided by Digital Brokerage Services LLC (DBS). Crypto accounts and related information and services are provided by Paxos Trust Company (Paxos), a New York State-Chartered limited liability trust company (NMLS #1766787). Crypto is volatile and speculative, and investments should not exceed amounts you are willing to lose.
Get started with the Plynk app for free. Some features may require a monthly fee in the future. Learn more (https://www.plynkinvest.com/disclosures/fee-schedule/).
Commission-free applies to U.S. equity trades, exchange-traded funds (ETFs), and Mutual Funds (MFs) for Digital Brokerage Services LLC (DBS) retail clients. Expenses charged by investments, interest charges, or other expenses for transactions still apply. See https://www.plynkinvest.com/disclosures/fee-schedule/ for details. Separate fees for crypto apply. See https://www.plynkinvest.com/disclosures/crypto-fee-schedule/ for details.