The market downturn has created some impressive opportunities.
In fact, we’ve found quite a few in value stocks, where even the strongest of companies were unfairly beaten down. Better, these are well-established companies with long histories of success. They’ve all had consistent profitability, with stable revenue streams. Some even make consistent dividend payments to shareholders.
Also, as noted by Forbes, “Inflation remains stuck at 40-year highs, and the Federal Reserve’s campaign of tightening monetary policy has been very bad news for the inflated valuations of many growth stocks. This has triggered a rotation from growth to value stocks as investors seek shelter in high-quality businesses with appealing fundamentals and low share prices.”
With that in mind, here are three top value stocks to consider right now.
Target Corp. (TGT)
Target was a disaster for most of 2022.
But that’ll happen with sky-high inflation, fears of a recession, and Americans living paycheck to paycheck. Things were so bad for Target that it missed third quarter EPS with a print of $1.54, which was below expectations for $2.16.
Margins got nailed, and management lowered guidance for the fourth quarter. Operating income fell almost 50% to $1 billion from $2 billion year over year. The good news was revenue was $26.5 bullion, which slightly beat expectations for $26.4 billion.
However, despite all of that negativity, the stock appears attractive. Piper Sandler appears to agree, upgrading the TGT stock to overweight with a price target of $200. Analyst Edward Yruma said, “Target is rapidly shifting inventory composition away from discretionary categories as the consumer continues to shift away from those key categories.” He also thinks that as Target pulls back on some of its promotional activity as we look ahead to 2023, that it will be able to regain 50% of its gross margin compression, as noted by Yahoo Finance.
In addition, Target carries a dividend yield of about 2.7%. And, at current prices Target offers a strong, compelling opportunity for patient investors. Target is also a company with a very long history of successful. We believe the company will look back at 2022 as a bump in the road.
AbbVie (ABBV)
AbbVie (ABBV) had a strong 2022, and we expect for 2023 to be just as strong. At the moment, even with nearing patent expirations on its Humira drug. ABBV just increased its quarterly dividend to $1.48 a share from $1.41, or $5.92 annualized.
Sure, its multi-billion-dollar Humira drug lost protection in Europe and will face increased competition from biosimilars in 2023, but don’t write the stock off just yet. The company had $22 billion in free cash flow in 2022, which will keep its 3.74% yield safe. In addition, ABBV trades at 13.8x forward earnings, as compared to 17.6x for the S&P 500.
Helping, Credit Suisse analyst Trung Huynh just initiated coverage of AbbVie with an Outperform rating and $170 price target, as noted by TheFly.com. The analyst also called ABBV “one of his two top ideas based on a relative basis among the U.S. large-cap biopharma peer group. Management’s 45%, plus or minus 10% erosion, expectation of Humira is ‘too conservative’ and he sees long-term durability from portfolio leverage as well as incremental growth from the company’s ‘robust pipeline.’”
Also, as noted by Barron’s, “The company has profitable products that have begun to fill the gap left by Humira’s decline. Investors who preferred to wait out the transition from Humira may have erred—AbbVie stock is up by more than 19%, to a recent $162, so far in 2022. Moreover, the stock looks cheap and has a handsome dividend yield. It’s worth owning—now.”
Schwab U.S. Large Cap Value ETF (SCHV)
One of the best ways to diversify is with an ETF, such as the Schwab U.S. Large Cap Value ETF (SCHV), which carries a balanced portfolio of large cap value stocks. With an expense ratio of 0.04%, the ETF offers exposure to companies such as Berkshire Hathaway, Johnson & Johnson, Exxon Mobil, JP Morgan Chase, Home Depot, AbbVie, Pfizer, Merck, and dozens more.
At the moment, the SCHV ETF trades at $67.09. With that, we gain exposure to hundreds of stocks in the SCHV portfolio. Also, if we wanted to buy 100 shares of the ETF, it would cost us just over $6,700. Meanwhile, if were to buy 100 shares of just Home Depot, it would cost us more than $31,740 for one that just stock.
ETFs can also be safer than individual stocks. Not only because of the lower price, but also because of diversification. After all, you’re investing in a portfolio of different stocks, and it’s highly unlikely that all of them will lose all of their value. Plus, if you’re just investing in individual stocks your risk can increase, especially if you’re putting all your eggs in one basket.
