Value investing, a strategy favored by renowned investors such as Warren Buffett, focuses on identifying undervalued stocks that are trading below their intrinsic value. This approach becomes particularly attractive in overheated markets, where finding fairly priced assets can be a challenge.
The current US stock market presents a worrying picture for many investors. The Shiller P/E Ratio for the S&P 500 is at 35.82, more than double the historical average of 17.14. The metric, which compares stock prices to inflation-adjusted earnings over the past decade, suggests the broader market may be significantly overvalued at current levels.
Armed with this background, these three value stocks are currently the best buys for long-term investors. Read on to learn more about these deeply undervalued stocks.
1. Viatris
Viatris (NASDAQ: VTRS) is a global healthcare company formed by the merger of Mylan and Upjohn, a former division of PfizerThe company specializes in generic and branded medicines.
Viatris shares trade at a forward price-to-earnings (P/E) ratio of just 4.33, well below the industry average of 17. The company has struggled since its inception due to pricing headwinds surrounding small-molecule generic drugs.
In addition to its rock-bottom valuation, Viatris offers shareholders a solid 4.12% dividend yield. On the downside, Wall Street is predicting a 1.5% drop in sales for the drugmaker in 2025 due to continued price erosion in the generic drug market.
The investment thesis for Viatris comes down to the company’s ability to optimize its product portfolio and create value through its innovative drug pipeline. Viatris certainly qualifies as a turnaround story, but it has the pieces in place to deliver strong returns over the next decade.
2. Ford Motor Company
Ford Motor Company (NYSE: F) is a household name in the automotive industry that is currently undergoing a major transformation towards electric vehicles (EVs).
Ford shares trade at a forward P/E ratio of 5.39, and the stock yields a whopping 5.71%. That said, the auto giant isn’t a growth powerhouse. Wall Street expects modest 1.1% revenue growth through 2025, reflecting the challenging transition to electric vehicles, along with a handful of recent production issues.
The bottom line is that Ford is a turnaround story right now. But the automaker’s aggressive transition to electric vehicles and pivot to its most profitable segments should pay off over the next 10 to 20 years. So if you’re looking for deep value in this overheated market, Ford should be on your radar.
3. Ally Financial
Ally Financial (NYSE: ALLY) is a digital financial services company offering a range of products including auto financing, online banking and investment services.
Ally shares trade at a forward P/E of 13.4, which is below average for the financial sector. Additionally, the dividend yield is a healthy 2.88%. Ally is also expected to post strong revenue growth of 12.7% through 2025, though the exact catalyst behind this double-digit revenue projection isn’t entirely clear.
The investment case for Ally is based on its digital-first approach, which enables lower overhead costs compared to traditional banks. Its strong position in auto lending and growing deposit base provide a solid foundation for future growth.
However, an economic downturn could impact loan performance, particularly in the auto segment. As such, this financial stock is definitely not a bargain for short-term traders looking to make a quick profit. But it should appeal to value investors willing to hold it through multiple economic cycles.
Key Points
These three value stocks probably won’t give your portfolio an overnight boost. Each company is facing significant challenges right now. However, Viatris, Ford and Ally all have strong underlying businesses that, while in need of some adjustment, should prove resilient over the long term. For investors looking for alternatives to the handful of names currently powering the S&P 500, these three stocks could be worth serious consideration.
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Ally is an advertising partner of The Ascent, a Motley Fool company. George Budwell has positions in Pfizer. The Motley Fool has positions in and recommends Pfizer. The Motley Fool recommends Viatris. The Motley Fool has a disclosure policy.
3 Top Value Stocks to Buy Now was originally published by The Motley Fool
