3 value stocks that will make you richer in June (and beyond)
For more than a decade, growth stocks dominated Wall Street. This is because fast growing businesses bask in perfect conditions. The Federal Reserve has kept lending rates historically low and its monthly bond buying program helps keep long-term yields low. This has allowed growing businesses to borrow at incredibly low rates.
But take it a step further and you’ll see a story when value stocks thrive.
Back in 2016, Bank of America/ Merrill Lynch published a report that examined the performance of value stocks versus growth stocks over a 90-year period (1926-2015). The result? Value stocks posted the highest average annual performance (17% vs. 12.6%). In addition, they performed much better in the early stages of an economic recovery, and that is where we are now.
In other words, if you’re looking to build wealth over time, the following trio of value stocks might be just what you need to get richer in June and beyond.
Sometimes the reason value stocks are so intriguing is that they are also seen as growth stocks. This is the case for specialized biotechnology stocks Vertex Pharmaceutical (NASDAQ: VRTX).
While most value stocks have been on fire over the past year, Vertex has suffered tremendously. The company’s shares have fallen 28% in the past year, which is a 66 percentage point underperformance against the benchmark. S&P 500.
Much of this can be blamed on a mid-October update that announced the end of a Phase 2 trial involving the investigational drug VX-814. While this update was disappointing, Wall Street and investors seem to overlook an abundance of bright spots.
For example, Vertex has developed several generations of approved treatments for cystic fibrosis (CF), a genetic disease characterized by the production of thick mucus that can clog the lungs and pancreas. There is no cure for cystic fibrosis, but Vertex has cracked the code, in and of itself, to help improve lung function in patients.
The company’s newest drug, Trikafta, targets the most common mutation in cystic fibrosis and was approved in 2019 five months ahead of the Food and Drug Administration’s scheduled review date. It grossed nearly $ 3.9 billion in sales last year and will likely reach $ 6 billion in annual sales or more.
Plus, Vertex is sitting on a cargo of money – $ 6.92 billion, to be precise. This capital will allow Vertex to advance the ten experimental compounds under development and could be the catalyst for future acquisitions in order to diversify its sources of income.
Value investors can grab Vertex right now for a forward price-to-earnings ratio of less than 17. It’s exceptionally inexpensive given its sustained double-digit sales growth.
There may not be an industry that is teeming with valuable stocks right now than gold mining. Gold stocks spent the first part of the 2010s going into debt and the second half of the decade reducing their borrowing capacity. As a result, many of them now have favorable multiples relative to their cash flow. One of those companies that is sure to raise the eyebrows of value investors is Gold Yamana (NYSE: AUY).
There can be no discussion of gold stocks without first addressing the catalysts that might push the underlying bright yellow metal higher. The Fed’s accommodative monetary policy, its ongoing quantitative easing, and even the future outlook for inflation are all reasons why gold may hold or rise from current levels. This is great news for all gold producing mining stocks.
But there’s a lot more to love about Yamana than just “gold prices are likely to go up.” For example, Yamana has done a remarkable job of improving her balance sheet over the past five years. For a company that once had $ 1.7 billion in net debt, Yamana ended the first quarter of 2021 with just over $ 300 million in net debt.
The company has also seen improvements in production at key mines. The company’s flagship mine, Canadian Malartic, 50/50 owned with Agnico Eagle Mines, produced nearly 90,000 ounces of gold in the first quarter, up significantly from 64,763 ounces produced last year in the first quarter. There is also the rise of Cerro Moro, whose additional gold and silver production is expected to help Yamana reach 1 million ounces of gold equivalent of production on an annual basis for many years to come. .
In my over a decade of tracking gold stocks, I have come to the conclusion that a multiple of 10 times cash flow is a fair estimate. With only six times the future cash flow, Yamana remains a steal.
A third valuable stock that can make you richer in June and beyond is Chipmaker Broadcom (NASDAQ: AVGO). Yes, there is real value in the tech industry.
The bulk of Broadcom’s revenue comes from providing wireless chips and other accessories in smartphones. It’s certainly a lucrative time to be a key supplier of smartphone chips, given the ongoing 5G infrastructure upgrades. It’s been a decade since the last major download speed upgrade, which means Broadcom is expected to see a sustainable, multi-year increase in demand as businesses and consumers switch devices for faster wireless speeds.
Broadcom is also expected to benefit from the continued push for cloud data by businesses. Before the pandemic, most businesses were gradually changing their online presence. But since the coronavirus pandemic hit, companies have had no choice but to strengthen their online presence and move data to the cloud to make it accessible to employees. This implies an increasing demand for storage in data centers. This is great news for Broadcom, which manufactures a line of connectivity and access chips used in data centers.
If that’s not enough to get you excited, Broadcom CEO Hock Tan announced in March (i.e. quite early in the company’s 2021 fiscal year) that around 90% of its supply in chips for the year had already been ordered. With such robust demand, Broadcom should have no problem increasing its bottom line and bottom line.
Investors can currently buy shares in the company for 16 times the earnings for the coming year, while pocketing a 3% dividend yield in the process. I should also mention that Broadcom’s payment has gone from $ 0.07 per quarter to $ 3.60 per quarter in just 10 years.
It is a top notch business at a very reasonable price.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.