Best Value Stocks for 2024 (2024)

The old stock-market stereotype is that there are two types of investors out there: growth and value.

While growth investors focus on companies whose core business will ramp up quickly in years ahead, value investors love to bargain-shop for stocks that have been unfairly beaten down.

There are many ways to value a company, but the most common is called the price-earnings ratio, or P/E ratio: The price you are paying for a stock, compared with the profits the firm is generating. A high P/E means the stock is pricey; a low one means it’s on sale.

Value stocks have low P/Es, typically with a share price below the long-term average of 16 times earnings. But it is a false notion that you have to choose between growth and value. Pick your stocks right, and ideally you can find investments with characteristics of both—growing businesses that are selling for cheap.

Despite a strong year for the markets, up more than 20%, there is still value to be had. In fact a growth investing approach has beaten a value approach handily for most of the year—which means that some out-of-favor stocks could be ripe for the picking.

To highlight a few of the best value stocks out there, we asked some top fund managers for their favorite names.

JPMorgan Chase

• Ticker: JPM
• Yield: 2.7%
• Share price: $157
• Price-to-earnings ratio: 10
• Who picked it: John Bailer, portfolio manager, BNY Mellon Income Stock Fund

For bargain-minded fund managers, the tricky situation to avoid is the so-called “value trap.” Some stocks may be attractively valued—but for good reason, such as tumbling profits, or declining or disrupted industries.

To prevent getting lured in by a sinking company, portfolio manager John Bailer employs a “three circles” approach. Instead of purely looking at value, investors should also look to other crucial criteria like momentum and quality fundamentals.

One stock that passes all three tests with flying colors: banking giant JPMorgan Chase.

“This is a stock we have owned ever since Jamie Dimon took over (as CEO in 2006), and we still think it is very inexpensive,” says Bailer. “Dimon is one of the best.”

And yet valuation, at a shade over 10 times earning, is quite reasonable compared with about 19 for the rest of the market. The reason for its affordability isn’t its failings as a company, Bailer says, but the fact that it “is in a bad category, with banks being out of favor.”

That gloom reflects a lofty interest-rate environment, as well as the severe troubles earlier in the year with the failure of some regional names including Silicon Valley Bank. Depositors became nervous about their cash, hurting the banking sector across the board and even creating something of a mini-run on smaller banks.

But investors can breathe easy about JPM, says Bailer—not only is it a behemoth with over a trillion dollars on its balance sheet, its capitalization is “rock solid”.

To be sure, the stock price has already enjoyed a robust 2023, up around 20%. But at these modest valuations there should still be room to run: Throw in a healthy dividend yield, and the stock should give investors a safe place to reside no matter what happens with the broader economy.

“From a big-picture standpoint, I don’t think we will get the type of market returns like we saw in the era when money was free,” says Bailer. “If there are more muted returns out of the market, you want companies with value characteristics, that pay out a decent dividend yield, that are trading at big discounts compared with expensive stocks and to their own history—a company like JPMorgan Chase is exactly where you want to be.”

Bristol-Myers Squibb

• Ticker: BMY
• Yield: 4.6%
• Share price: $50
• Price-to-earnings ratio: 6.7
• Who picked it: Jeff Muhlenkamp, portfolio manager, Muhlenkamp Fund

This has been a year to forget for $100-billion pharma giant Bristol-Myers Squibb, at least in terms of share price.

The stock is down roughly 40% over the past year, despite robust results—around 20% in both quarterly earnings growth and profit margins, and return-on-equity that is even better, at almost 27%.

And yet, the stock is currently unloved. That’s exactly the kind of disconnect that fund managers like Jeff Muhlenkamp are looking for.

As always with big pharma companies, market sentiment tends to revolve around drug pipelines. With a couple of products having come off-patent, Bristol-Myers Squibb needs to replenish its pipeline going forward—and the company has been punished mightily by the market for it.

“The market is giving them no credit for any possible good news in future,” says Muhlenkamp, who oversees the Muhlenkamp Fund, ranked four stars by research firm Morningstar.

“But there are plenty of opportunities to make good things happen. They are buying back shares, they are paying a hefty dividend, and they still have plenty of cash to go and do acquisitions.”

Indeed, that scenario played out in 2019, Muhlenkamp points out, when BMY bought Celgene to restock its own pipeline—the kind of smart acquisition the firm needs to do more of. “Now the company finds itself in the same boat it was in back then.”

Of course the real test will be the quality of any acquisitions the company decides to make with its war chest, under the direction of incoming chief executive Chris Boerner. But with good management decisions, the potential is significant, with price-earnings multiples that could double or even triple, says Muhlenkamp.

Currently the valuation is so rock-bottom—below seven times earnings, well below historic norms—that downside has already been well-baked into the share price.

Meanwhile the stock is throwing off generous payouts, at a bondlike yield of 4.6%, far higher than the S&P 500 average of roughly 1.6%. Muhlenkamp sees that dividend as secure, and not in danger of being slashed.

Of course investors should always be mindful of potential “value traps” with stocks selling at such a deep discount, Muhlenkamp says. But with a manageable debt load, plenty of free cash flow, and the bankroll to pounce on promising biotech startups, the table is set for a classic value-stock rebound.

“My guess is that the share price has an upside of between 50% to100% over the next two to three years,” he says. “That’s not unreasonable, if they make some good decisions.”

Verizon

• Ticker: VZ
• Yield: 6.9%
• Share price: $39
• Price-to-earnings ratio: 8.3
• Who picked it: Rick Taft, co-portfolio manager, Columbia Select Large Cap Value

This has been a lucrative era for technology stocks, many of which are trading near record highs. One exception: telecommunications giant Verizon, which has been relegated to the bargain bin.

On its face that may be understandable, since its niche of mobile phones has been fairly maxed out. Since virtually everyone has one these days, the days of huge growth are over, and competition between the large carriers can be cutthroat.

That being said, when valuation falls enough, the appeal of a gigantic cash machine can be hard to deny. One portfolio manager who has taken notice is Columbia Threadneedle’s Rick Taft.

“We really like the stock here, and added more in its recent pullback,” says Taft. “It has a lot of things you look for as a value stock: Not only is it cheap, but it has a number of catalysts working for it. Its turnaround story began a year ago, and the company is returning to best-in-class performance.”

There are a couple of reasons for that, he says: One is a series of senior management hires, including a new chief financial officer, many of them promoted internally and who come with “great pedigrees.”

Another catalyst for refreshed prospects is an improved network: While Verizon used to be known for its top performance, says Taft, that lead over its competitors has narrowed in recent years. But thanks to big investments in the spectrum, a renewed quality difference should propel better growth numbers going forward.

Of course those investments led to large amounts of debt on its balance sheet, which may be another reason investors have stayed away. But now that the debt is being cleared away instead of built up, it should put the company on sounder financial footing.

Meanwhile, the dividend yield is a sky-high 7%, enough to have income-oriented investors drooling. A payout that lofty can make some analysts nervous, but Taft sees it as “bulletproof.”

Historically, the stock’s valuation multiples have ranged around 12 to 15, but Verizon is now on the sales rack at eight times earnings. Taft also likes its recent marketing pivots—toward serving local markets, instead of a one-size-fits-all national strategy; and catering more to the nation’s growing Hispanic population. It has also notably improved network performance in urban centers.

“There are a number of reasons why share price has been down: It went from having the best network to having an average network, it lost a bit of market share, and it had a levered balance sheet,” Taft notes.

But, he adds, the company still has 100 million customers. He believes the business could grow moderately in coming years—all that is necessary, given the share price.

“We are value managers, we tend to be contrarian—and we think there is a lot of opportunity here,” he says.

Western Digital Corp.

• Ticker: WDC
• Yield: N/A
• Share price: $47
• Price-to-earnings ratio: N/A
• Who picked it: Vincent DeAugustino, lead manager, T. Rowe Price Mid-Cap Value

If there is anything true about modern society, it is that we are all awash in “Big Data.” Something in the order of 328 million terabytes of data are being created every single day (that’s a lot of zeros).

Enter data storage companies, whose job it is to deal with all this information—in everything from enormous cloud data centers, to the smallest personal devices and portables. Western Digital is one of the leaders in the space.

“We search for companies that might be faced with challenges, but are ultimately fixable,” says T. Rowe Price’s Vincent DeAugustino. “We first bought WDC around 18 months ago, with the view that valuations were at a discount.”

So what is the ‘fixable’ problem? The firm actually oversees two distinct business lines, hard drives and flash memory. Activist investors such as Elliott Investment Management have long held that separating the two is what will unlock value, and let each division focus on what it does best. In a 2022 letter to the board, Elliott predicted that such a strategy could propel the stock to $100 a share.

This fall, the Western Digital board agreed, with the split into two independent public companies to take place through the second half of 2024. Investors have responded positively, with the stock up 40% over last year’s level, and a number of analysts upgrading the stock to ‘Buy’ or ‘Strong Buy.’ But DeAugustino still sees more good news to come.

“We have come off last year’s bottom, but we are still well below where it has traded in the past,” he says. In the spring of 2021, for instance, the stock rose above $75. “Sentiment is turning, but we are still in the early stages of the gains we will start to see.”

One reason for that is industry- and economywide issues that have weighed over the company. Factors like cautious IT spending, supply chain hiccups and inflation concerns have kept a leash on stock prices across the industry.

When those trends turn, coupled with the spinoff—the hard drive portion will keep the Western Digital name, and the flash business will be handed off to shareholders—there will be twin engines propelling the company to liftoff.

Says DeAugustino: “There are tailwinds at our back.”

IQVIA Holdings

• Ticker: IQV
• Yield: N/A
• Share price: $215
• Price-to-earnings ratio: 19
• Who picked it: Robert Bierig, Portfolio Manager, Oakmark Fund

For much of 2023, healthcare investors have been on life support. In fact, it has been one of the worst-performing sectors in the S&P 500.

For value investors, that’s when things start to get interesting. So while the Oakmark fund shop has shied away from healthcare for years, underweighting the sector in its holdings, its managers are now spotting more and more intriguing buys.

Primary among them: IQVIA Holdings. The firm might not have high name recognition among the general public, but it’s a $40-billion giant in its particular niche of providing data and analytics, tech solutions, and clinical-research services to the life-sciences industry.

The firm was formed seven years ago through the combination of IMS Health (the “gold standard of prescription records, with over a billion patients going back 50 years,” says Bierig) and Quintiles (the largest research organization doing outsourced clinical trials). That partnership leads to “faster growth than either company could achieve on their own,” says Bierig.

But the stock price has been nothing to write home about recently, essentially flat for the past year. One explanation for the sluggishness is that the sector as a whole has been out of favor with investors. Another is concern around funding availability for biopharma companies, compared with the relative boom years of 2020 and 2021, as credit conditions have tightened.

Bierig sees these challenges as temporary, and has particular confidence in the management team led by Chief Executive Ari Bousbib, who has helmed the company since its inception. Bousbib has done an “excellent” job since the firm’s formation, and notably has significant “skin in the game” with his own ownership of shares, says Bierig.

“The stock is down 25% from its peak two years ago, and is near its lowest earnings multiple since the company was formed,” he says. “It’s rare that this stock goes on sale—and we think it deserves to trade at a premium.”

How We Picked

To find the best value stocks we polled experienced fund managers at major mutual-fund companies. We asked representatives of each portfolio to recommend one stock they felt had a solid fundamentals, an attractive valuation and potential for growth.

We favored companies with strong brands and economic moats, the size to weather coming storms, and whose stock price is likely to appreciate significantly over the long-term.

Forward price-to-earnings ratios represent estimated earnings over the next 12 months. All yields and share prices are as of market close on Dec. 7, 2023.

Got a money question? Let Buy Side find the answer. Email money@buysidewsj.com.

Include your full name and location, and we may publish your response.