Value Stocks: Why They're Important & Our Top 5!Jan 15, 2021
Looking for a good investment advice? The attention of the stock market and broader investment landscape has been revenue growth-focused over last decade or so. Growth-focused investors seek companies that offer strong earnings growth while value investors seek stocks that appear to be undervalued in the marketplace which is essentially following the value investing strategy.
While the two can coincide the person who focuses on growth investing usually focuses on younger companies with strong FUTURE earnings potential while the value investor, focuses on mature companies, that have predictable cash flows, offering reliable dividend yield and slow stock price appreciation or growth rate.
While each approach has its merits, both approaches can be utilized by investors! What we mean by this is that many investors employ a strategy called diversification. How do I invest in stocks?
*Please skip to the next paragraph if you know what diversification is. If you do not, please read on*
In a diversification strategy, investors invest in different types of assets in order to spread risk and profit across industries. So for example, we often see investors invest in bonds, real estate, growth stocks, value stocks, etc. in order to diversify their portfolio.
By doing so, investors can both benefit from the gain of a specific industry/type of investment as well as hedge their risk from a specific type of stock blowing up. For example, if an investor invested all of their money in tech stocks and the tech vertical sold off, then that investor would lose a lot of money. But if that same investor invested in tech, real estate, auto, etc., then if tech sold off, only a portion of their portfolio would lose money rather than the whole thing!
Conversely, if one-day auto stocks rapidly rose in value, that same investor would then see the gains of investing in auto.
And if that same investor only invested in tech stocks, then they would miss out on the gains of the auto sector! Long story short, diversifying your portfolio helps balance your risk. More diversification = less risk, but potentially less gains, whereas less diversification = more risk, but potentially more gains.
Risk and Performance will ALWAYS be related. The more risk you take, the more upside or downside you may see. The less risk you take, the more your portfolio will not see rapid movements in either the positive or negative direction!
And while diversifying, value stocks (which have not nearly appreciated as much as growth stocks), still have merit in a portfolio. What they provide is two things. 1) They provide reliable income in the form of dividends.
And they also provide somewhat stable revenue growth with more predictability. So while a stock like Coca Cola will most likely never see the gains that a stock like Tesla will, Coca Cola is meant to provide you with income (via the dividends) and be an alternative to “cash” so that you still can make some money! And while Coca Cola can sell off (there is always risk with any investment – hence why you can make money) the chance of it doing so is so much less likely than Tesla!
And so with that introduction on how value investments can be a part of your overall portfolio, please see the list below on our 5 favorite value stocks! The list below will show the stock, the dividend yield, the ticker and a brief description on what the company does.
The dividend yield, expressed as a percentage, is a financial ratio (dividend/price) that shows how much a company pays out in dividends each year relative to its stock price. So if a stock is worth $100 and its yield is 10%, you can expect to receive $10 in dividends per year! In addition to this you also stand to benefit from any appreciation in the stock price!
What are the best value stocks?
Top 5 Value Stocks:
1) Hess Midstream Operations (HESM) -> Dividend Yield (8.54%): Hess Midstream Operations LP owns, develops, acquires, and operates midstream infrastructure assets. The Company focuses on gathering, compressing, processing, storing, and transporting of natural gas liquids, crude oil, and propane. Hess Midstream Operations serves customers in the United States.
2) Valero Energy Corp (VLO) -> Dividend Yield (6.57%): Valero Energy Corporation is a Fortune 500 international manufacturer and marketer of transportation fuels, other petrochemical products, and power. It is headquartered in San Antonio, Texas, United States.
3) Marathon Petroleum (MPC) -> Dividend Yield (5.25%): Marathon Petroleum Corporation is an American petroleum refining, marketing, and transportation company headquartered in Findlay, Ohio. The company was a wholly owned subsidiary of Marathon Oil until a corporate spin-off in 2011.
4) Citizens Financial Group (CFG) -> Dividend Yield (3.88%): Citizens Financial Group, Inc. is an American bank headquartered in Providence, Rhode Island, which operates in the states of Connecticut, Delaware, Maine, Massachusetts, Michigan, New Hampshire, New Jersey, New York, Ohio, South Carolina, Pennsylvania and Vermont. It operates more than 1,008 branches and has over 3,100 ATMs across 11 states under their brand.
5) Coca Cola (KO) -> Dividend Yield (3.28%): The Coca-Cola Company is an American multinational beverage corporation incorporated under Delaware's General Corporation Law and headquartered in Atlanta, Georgia. The Coca-Cola Company has interests in the manufacturing, retailing, and marketing of nonalcoholic beverage concentrates and syrups.