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11 Best Value Stocks for This Overpriced Market

3 5 16
07.09.2020

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Stocks have made a remarkable (and remarkably rapid) recovery from the 2020 bear market. Indeed, the Nasdaq and S&P 500 have recaptured and reset their all-time highs.

But stocks have become incredibly frothy once more. The S&P 500 trades at 27 times analysts' earnings estimates. The Nasdaq is even loftier, at a 34 forward price-to-earnings (P/E) ratio. Stocks are simply expensive again, making it difficult to find great value stocks.

The way to start, of course, is to focus on companies that have been overlooked by investors because of temporary challenges but nonetheless remain well-positioned to deliver superior returns over the longer-term.

In hopes of identifying the best value stocks right now, especially for buy-and-hold investors, we looked for:

Here are 11 of the best value stocks to buy in this overpriced market. Some might remain against the ropes until America's economic recovery picks up the pace. But patient investors could reap big rewards from buying now and holding through the recovery.

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Drug developer AbbVie (ABBV, $92.24), which was spun off from Abbott Laboratories (ABT) seven years ago, owns blockbuster drugs including Humira and Rinvoq for arthritis, Skyrizi for psoriasis and Imbruvica for leukemia and lymphoma. The recent acquisition of Allergan adds cosmetic drug Botox and other drugs representing $16 billion in sales to AbbVie's portfolio.

The company also has more than 30 early-stage drug candidates being developed in-house and new drug candidates in eyecare and migraine prevention acquired with the Allergan purchase.

AbbVie's biggest challenge is patent expirations on its blockbuster drug Humira, which is already competing with biosimilars in Europe and losing U.S. patent protection in 2023. Humira accounted for nearly 58% of the company's 2019 sales. However, a new rheumatoid arthritis drug candidate AbbVie is developing, ABBV-3373, performed well in Phase 2 trials and could soon replace Humira. That would help the company preserve its market leadership and competitive advantage in this space.

In its oncology product line, AbbVie recently partnered with Genmab (GMAB) to develop and market three new antibody-based cancer drugs.

AbbVie has been a strong performer that has delivered 29% annual profit growth, not to mention a Dividend Aristocrat that has bolstered its payout by more than 18% annually on average over the past half-decade. Most recently, June-quarter revenues rose 26% due to Allergan's contribution, but more importantly, adjusted EPS grew 4%. ABBV also upped its full-year guidance and anticipates 11% EPS accretion this year from the Allergen acquisition.

Despite all this, AbbVie is one of the best value stocks in the blue-chip space based on traditional metrics. ABBV shares trade at just 9 times next year's earnings estimates, which is 20% below its own five-year average and a third of the average health care stock's forward P/E.

"Given the strength of the portfolio and the breadth of the combined ABBV-AGN pipeline, we believe the post-merger company has multiple growth drivers and that the stock is favorably valued at current levels," writes Argus Research, which has ABBV rated at Buy.

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Ingredion (INGR, $80.02) produces and sells sweeteners, starches, nutrition ingredients and biomaterials that are used in foods, beverages, pharmaceuticals and personal care items. The company operates worldwide, sells to more than 18,000 customers in 120 countries, and generates more than $6 billion in annual sales.

INGR's growth plan focuses on introducing new products that leverage sustainability and health-and-wellness trends, as well as expanding its line of plant-based proteins, starch-based texturizers, specialty sweeteners and clean and simple ingredients.

Ingredion has generated 13% annual adjusted earnings-per-share (EPS) growth over 10 years, but 2020 results have been hurt by the pandemic. Its profits fell 33% year-over-year during the June quarter, for instance.

However, analysts still like the company's long-term growth prospects and forecast 10% annual EPS gains over the next three to five years. If that's the case, Ingredion should be able to keep up its 8% annual dividend-growth pace of the past five years while maintaining a prudent 40% payout ratio.

And INGR stands out among value stocks in the consumer staples group. A forward P/E of 14 is about 30% below the sector median, and slightly below its own historical forward P/E of 15.

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McKesson (MCK, $150.22) distributes pharmaceuticals and medical supplies worldwide. The company accounts for one-third of all pharmaceuticals distributed in the U.S., serves 17,000 US pharmacies and operates the nation's fourth-largest pharmacy chain overall. McKesson generated $231 billion of revenues last year and ranked seventh on the list of Fortune 500 companies.

Its profit trend has been heading in the wrong........

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