As we begin the new year, many investors are looking for opportunities to add value stocks to their portfolio. While market conditions can be unpredictable, there are several companies that show strong potential for growth and profitability in 2023, regardless of the possibility of a recession. In this article, we will highlight the top 5 value stocks to consider for your portfolio in the coming year.
After the most recent employment report indicated a 3.4% in unemployment and the addition of 517,000 new jobs, it appears that the job market remains tight. However, some economists are of the opinion that in light of a slowing economy and real estate prices, the Fed needs to adopt a more dovish stance. Although the Fed has reduced the pace of its interest-rate increases from 75 to 25 basis points, there are significant differences of opinion on whether a recession will occur in 2023.
Irrespective of the outcome, the 2023 investment scenario may benefit value investing over growth investing, allowing investors to acquire stocks at a significant discount with the expectation of capitalizing on an economic recovery. While many growth stocks suffered setbacks in 2022, with layoffs and earnings losses in 2023, value stocks’ earnings are less vulnerable to an increase in interest rates when discounting their future earnings. As a result, I have identified five value stocks to consider based on our quant ratings.
1. United Airlines (NASDAQ:UAL)
- Market Capitalization: $16.59B
- Quant Rating: Strong Buy
United Airlines Holdings, Inc., operates as a renowned airline carrier transporting passengers and cargo globally through its subsidiaries. Despite facing challenges such as reduced travel due to the pandemic, higher fuel costs, and pilot shortages, the company’s efforts to hire and invest in widebody aircraft have resulted in positive Q4 earnings.
United Airlines has shown significant progress in terms of profitability, reporting consecutive double-digit increases in adjusted operating margins. Its revenue of $12.40B surpassed last year’s figure by over 50%, and EPS of $2.46 exceeded expectations by $0.32, leading the company to provide an optimistic outlook for 2023.
With a $6.07B reserve and strong cash flow, United Airlines is poised for a positive outlook, with the potential reinstatement of corporate business travel being a driving factor for growth in 2022 and 2023.
As the economy continues to recover, the increase in travel demand and leisure activities is expected to drive United’s profitability and growth. Despite displaying solid growth and receiving 14 upward revisions over the last 90 days, United’s stock is still trading at a discount.
Stone Fox Capital’s report claims that United Airlines’ bullish momentum and a favorable business environment make it a profit-generating machine. The company’s 2023 targets suggest that its stock would trade at $150 or more, emphasizing its undervaluation.
Consider United Airlines stock as a valuable addition to your portfolio, alongside two other financial picks focused on insurance and annuities.
2. American EquityLife Holding Co. (NYSE:AEL)
- Market Capitalization: $4.08B
- Quant Rating: Strong Buy
American Equity Investment Life Holding Company is a publicly traded financial services company that specializes in offering fixed index and fixed-rate annuities. The company was founded in 1995 and is headquartered in West Des Moines, Iowa, with operations in all 50 states in the United States. American Equity Investment Life Holding Company provides various products and services to help customers plan for their retirement, including annuities that provide a guaranteed lifetime income stream. The company’s mission is to help customers secure their financial futures by providing innovative products and excellent service. American Equity Investment Life Holding Company is committed to maintaining financial strength and stability to provide long-term value for its customers and shareholders.
Financials have historically been cyclical and have tended to benefit from high-interest-rate environments by passing on rate increases’ costs to their customers. In the current market environment, my top financial picks that specialize in offering life insurance and annuities stand out. This is especially relevant as the aging population continues to grow, with many retirees seeking steady streams of income.
It is worth noting that both American Equity Investment Life Holding Company and Jackson Financial (JXN) are undervalued and have been quant-rated as strong buys. These factors make them excellent investment options, given the market’s current state.
3. Jackson Financial (JXN)
- Market Capitalization: $3.85B
- Quant Rating: Strong Buy
Companies with diversified product offerings have the advantage of leveraging broad distribution channels and successful management teams. Jackson Financial, a spinoff from Prudential (PUK), has been experiencing significant growth and profitability since its demerger from Prudential in 2021. As a result, it has achieved the number one overall ranking out of 4756 companies. Similarly, AEL is delivering impressive top and bottom-line results, leading to high demand for its services. In fact, AEL has recently rejected offers for mergers and buyouts of their business segments, such as the $45 per share offer from Prosperity Group, which analysts deemed too low.
A closer look at each company’s valuation reveals that Jackson’s forward P/E of 0.63x is a -94% difference from the sector, while AEL’s forward P/E of 3.4x is a -67% difference. Both companies offer trailing PEGs of over -97% discounts to their peers, demonstrating their bullish momentum for the new year.
The strong momentum of both stocks, significantly outperforming their peers’ quarterly price performance, indicates that both are trending higher. Additionally, each stock has an upward-sloping 200-day moving average, a positive sign as we approach Q4 earnings and review past earnings.
In Q3, Jackson posted Non-GAAP EPS of $4.24, beating estimates by $1.34, and revenue of $4.02B, beating estimates by $2.59B, resulting in three analysts revising estimates upward for the last 90 days. While AEL’s Q3 revenues were not as impressive as Jackson’s, its revenue of $673.40M still managed a 12.10% year-over-year increase, and EPS of $1.29 beat estimates by $0.47.
Investors are increasingly seeking investments that can generate income while also avoiding paying a premium. Both Jackson Financial and AEL offer tremendous upside potential based on their valuations. With the increasing demand for annuities due to the aging population and retirees, each of these companies, focused on life insurance and annuities, is poised to benefit.
4. Cal-Maine Foods, Inc. (NASDAQ:CALM)
- Market Capitalization: $2.65B
- Quant Rating: Strong Buy
Cal-Maine Foods, Inc. is a United States-based company that produces and markets shell eggs. Founded in 1969 and headquartered in Jackson, Mississippi, the company is the largest producer and marketer of shell eggs in the US, with a market share of approximately 23%. Cal-Maine Foods operates in 16 states and sells its products in 29 states, primarily under the Egg-Land’s Best, Land O’ Lakes, Farmhouse, and 4-Grain brands. The company also produces and markets specialty shell eggs, including cage-free, organic, and nutritionally enhanced eggs. Cal-Maine Foods is committed to food safety, animal welfare, and sustainable farming practices.
Record-high grocery prices are putting a damper on consumers’ finances, but companies like Egg-Land’s Best, Land O’Lakes, and CALM are reaping the benefits. Despite egg prices beginning to trend down, peak egg prices remain intact, with the price of eggs up nearly 60% year-over-year. Despite the stock’s gain over the last year, it is still highly undervalued.
Despite inflationary pressures, the company has maintained strong momentum, outperforming its sector on a six-, nine-, and one-year price performance basis. As costs for feed, packaging, and delivery are passed on to consumers, CALM’s A valuation grade is supported by attractive forward P/E ratios of 3.76x and forward EV/EBITDA with an 81% discount. Pathogenic-induced shortages have resulted in an egg boom, leading to the company’s record margins, a 5.63% trailing dividend yield, and strong growth, profitability, and earnings revisions, making it a strong buy-rated pick.
CALM’s Q2 earnings were solid, with tremendous revenue of $801.7M (+110% YoY) and a quarterly gross profit margin of 39.6%, resulting in an A+ revisions grade and four analysts’ FY1 Up revisions over the last 90 days. As egg costs continue to be uncharacteristically high, CALM continues to capitalize, offering shareholders an increasing dividend and further reasons to consider this value stock for a portfolio.
5. Super Micro Computer, Inc. (SMCI)
- Market Capitalization: $4.40B
- Quant Rating: Strong Buy
Super Micro Computer, Inc. and its subsidiaries is a promising tech pick for 2023, which offers high-performance server and storage solutions that outshine its competitors in terms of efficiency, speed, and environmental impact. Its diversified product mix includes software, networking devices, security software, and subsystems, among others, resulting in a recent guidance raise. In the past year, the stock has risen by 115%, a notable feat in comparison to the Tech Sector’s (XLK) decline of -9.46%.
The Q2 2023 earnings release, which revealed an EPS of $3.26, beating estimates by $0.23, and revenue of $1.80B, beating Y/Y by 53.8%, is the company’s 12th consecutive earnings beat. These achievements, together with a robust balance sheet, suggest that SMCI is well-positioned to become one of the largest global suppliers of IT solutions. SMCI boasts an attractive IT valuation, with a forward P/E ratio of 8x, representing a -67% discount, and a forward PEG of 0.26x, representing an -84% difference from the sector.
In light of the potential economic turnaround and better-than-expected CPI figures, SMCI and the other five stocks may prove to be excellent value plays with long-term growth prospects. These stocks have demonstrated resilience in the face of market volatility in 2022 and achieved significant traction and growth heading into the new year. Each pick has a robust cash position and is currently undervalued. It would be prudent to consider these picks for inclusion in your portfolio for 2023.
In conclusion, selecting the right value stocks can be a profitable strategy in any market condition, and the top five value stocks for 2023 are well-positioned to provide long-term growth and income for investors. With strong cash positions, undervalued stocks, and resilient business models, these companies are likely to withstand market volatility and recessionary pressures.
It is essential to remember that investing in the stock market always carries risk, and past performance does not guarantee future results. It would be wise to conduct your research and consult with a financial advisor before making any investment decisions. However, for those seeking to invest in value stocks, the top five value stocks for 2023 offer an excellent starting point for building a solid and diversified investment portfolio.
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