5 Best Value Stocks to Watch in 2024
When analysing company shares, you may find that the intrinsic value of the stock exceeds the actual stock value at the time, which creates so-called “value stocks”. This article will explain what value stocks are and how to identify them. We will also discuss some of the best value stocks to watch and the advantages and disadvantages of investing in them.
Table of Contents
What are Value Stocks?
Shares of a company may appear to be underpriced when compared to their intrinsic value; in those cases, the stock becomes known as undervalued. Value stocks may temporarily be unpopular amongst investors for several reasons, including market sentiment, a poor recent performance, several economic factors, issues tied to the company, outdated business models and high debt.
How to Identify Value Stocks
A value stock company is often rooted in established stock sectors such as finance, utilities, and consumer products. Established companies often have stable revenues over the long term, allowing them to pay out dividends to shareholders.
The intrinsic value of stock can be measured by various metrics. The most common is the price-to-earnings ratio (P/E), where the current stock price is divided by the earnings per share. The resulting ratio is then compared to previous ratios within the company or to the average in the industry. The lower the ratio, the more likely it is that the stock is undervalued.
Other financial ratios that can identify stock value are the price-to-book ratio (P/B), the price-to-sales ratio (P/S), the earnings yield and the dividend yield. There are hundreds of different financial metrics used by analysts and investors. It's important to note that financial valuation metrics only state facts about the company's current state and cannot predict the future. A stock that is considered undervalued could stay like that for years and not present any future growth at all.
5 Best Value Stocks to Watch
Here is a list of some potential value stocks to watch. However, please note that “best” is subjective; this list serves as a starting point for further research and analysis.
- Diageo (DGE) - A leading British multinational beverage company
- British American Tobacco (BATS) - One of the largest global tobacco companies
- EasyJet (EZJ) - A budget-friendly multinational airline group
- Glencore (GLEN) - One of the world's largest natural resource companies
- Vodafone (VOD) - A multinational telecommunications company
Diageo
In 1997, Grand Metropolitan merged with Guinness to become Diageo. Throughout the years it overtook brands such as Johnnie Walker, Captain Morgan, and Baileys. With that, Diageo turned into one of the largest distillers and spirits distributors in the world. The corporate values of Diageo are to be diverse, and innovative and to be curious about the consumers of their beverages. The market cap of Diageo is currently $71.952 billion.
Diageo has a strong brand portfolio all over the world. However, the company faced inventory issues in Latin America, in addition to a decline in consumer demand. This will most likely not change in the short term, but the strong brand portfolio could help the company to recover and grow in the long term.
British American Tobacco
The British Imperial Tobacco Company and the American Tobacco Company merged in 1902 and became British American Tobacco. It expanded globally and acquired local tobacco companies. It is known for brands such as Kent, Lucky Strike and Pall Mall, but it also offers e-cigarettes and other products.
With the slogan “A Better Tomorrow”, the company aims to reduce its impact on its consumer’s health by innovative and less harmful products. The market cap of British American Tobacco is currently $84.433 billion. Even though the company has a strong cash flow, worldwide smoking rates seem to be declining, and the company has been facing ethical and regulatory challenges.
EasyJet
One of the largest budget airlines in Europe, EasyJet was founded in 1995 by Sir Stelios Haji-Ioannou. He started by leasing two Boeing 737 aeroplanes and cut costs by using secondary airports and a quick turnover of flights. Today, EasyJet still focuses on affordability but has expanded to primarily offering flights across Europe and has set the goal for net-zero carbon emissions. The market cap of EasyJet is currently $3.619 billion.
The COVID-19 pandemic greatly affected the airline industry. This caused airline stocks to decline, of which some have not recovered. On top of changing consumer demands, airlines also need to manage the volatility of fuel prices which can have a large impact on their profitability.
Glencore
Originally known as Marc Rich & Co, Glencore is a multinational commodity trading and mining company from Switzerland, which was founded in 1974 by Marc Rich. Throughout the years, it grew and merged with companies like Xstrata. Now it is one of the largest natural resource companies with various products and services, including metals, minerals, energy products, and agricultural products.
Glencore aims to advance everyday life with their services to develop, sustain and improve the world. The market cap of Glencore is currently $46.294 billion but the company has a high level of debt and when commodity prices go down, a high debt is a concern.
Vodafone
Previously part of Racal Electronics, Vodafone became independent in 1991 to focus on mobile telecommunications. With its services in Europe, Africa, Asia, and Oceania, Vodafone has become one of the biggest telecom companies worldwide. It offers mobile services, fixed-line services, and the ‘Internet of Things’ solutions. The market cap of Vodafone is currently $26.436 billion.
Vodafone has seen a decline in the stock price since 2022 and this may be due to several reasons, such as high debt, leadership changes and concerns about the dividend policy. It also has very strong competition in key European markets but is undergoing new plans to simplify operations, cut costs, and be more efficient.
Advantages and Disadvantages of Value Stocks
Value stocks have many advantages and disadvantages of which a few are highlighted below.
Advantages of value stocks
- Returns could outperform the market if investors recognise the intrinsic value of the stock, especially when comparing it to other companies in the same industry.
- As value stocks typically come from mature companies with a stable cash flow, some pay dividends.
Disadvantages of value stocks
- Stocks may be underpriced for a reason. Examples are when structural issues within the company exist or when the industry in general is on a decline. Stocks where this occurs are known as “value traps".
- Established companies often have a slower growth rate which may not be reflected in the share price for years.
- Value stocks often involve a long-term outlook as the market needs to recognise the intrinsic value. As this can take a long time, value investing requires patience.
- Value stocks often pay dividends, but when a company deals with financial challenges, it may decide to cut dividend payments.
How to Invest in Value Stocks
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You can learn more about trading and investing commissions on the Admiral Markets Contract Specification page. Search for global stocks and ETFs from the MT5 web platform and invest in four steps:
- Open an account with Admiral Markets.
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Continue Reading:
- Best Shares to Buy
- Best Monthly Dividend Stocks
- Best Stocks for Long-Term Growth
- 6 Short Term Investments
- How to Trade the US Stock Market
- The CFD Trading Guide
FAQs on Value Stocks
What are considered value stocks?
Value stocks are company shares that may be undervalued based on financial metrics, for example, one that has a price-to-earnings ratio between 1 and 15.
What are UK value stocks?
UK value stocks are shares of companies that are undervalued compared to their intrinsic value and are listed on the stock exchange in the UK.
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