2 Top Value Stocks to Buy for the Long Haul
Investors’ renewed optimism regarding the economic recovery, and the consequent stock market momentum, has led to sky-high valuations for several stocks, which in some cases is not justified considering those...
Investors’ renewed optimism regarding the economic recovery, and the consequent stock market momentum, has led to sky-high valuations for several stocks, which in some cases is not justified considering those names’ growth prospects. In addition, because the central bank has acknowledged that price increases have been more rapid and persistent than it anticipated, some investors could be spooked. So, we believe it could be wise to bet on quality stocks, such as Oracle Corporation (ORCL) and AstraZeneca Plc (AZN), which look undervalued at their current price levels. Read on.
With significant improvement in the employment rate and the overall economy, Fed Chairman Jerome Powell has announced the Fed’s plans to begin bond tapering later this month and has reaffirmed that the central bank will not rush to raise interest rates. This has led the major stock indices to edge higher to close at record highs on Wednesday.
However, in the face of rising inflation, which the Fed deems "transitory," it may be risky to invest in high-flying stocks, which have reached valuations that in some cases are not justified by their company’s growth prospects. This is because any market downturn could spell a significant price decline for these stocks. But it also could be an opportune time to bet on quality stocks that are trading at reasonable valuations. This year, value stocks have performed relatively well, as evidenced by the SPDR Portfolio S&P 500 Value ETF’s (SPYV) 19.7% returns year-to-date.
Despite performing well in recent months, shares of Oracle Corporation (ORCL) and AstraZeneca Plc (AZN) appear undervalued at their current price levels, given these companies’ growth attributes. So, we believe these stocks could be ideal bets now.
Oracle Corporation (ORCL)
ORCL, in Redwood City, Calif., offers solutions and services for enterprise information technology (IT) environments. The company's businesses include cloud and licensing, hardware, and services. Its goods and services include applications and infrastructure offerings delivered via several IT deployment patterns.
This month, ORCL announced the availability of Oracle Cloud Infrastructure (OCI) AI services. It is a set of services that make it easier for developers to incorporate AI into their applications without having data science knowledge. According to the company, the new OCI AI services afford developers the option of using pre-trained models or custom training on the services using their own data.
Last month, ORCL announced plans to expand its cloud region footprint to meet the growing global demand for Oracle Cloud services. The company plans to create 14 additional cloud regions across Europe, the Middle East, Asia Pacific, and Latin America over the next year. In addition, it plans to have at least 44 cloud regions by the end of 2022, continuing one of the fastest expansions of any major cloud provider.
For the first quarter, ended August 31, 2021, ORCL’s revenue increased 3.9% from its year-ago value to $9.73 billion. Its operating income grew 6.7% year-over-year to $3.43 billion. The company’s net income surged 9.2% from the prior-year quarter to $2.46 billion. Its EPS increased 19.5% from the year-ago value to $0.86.
A $5.15 consensus EPS estimate for next year represents a 9.8% increase year-over-year. The $42.24 billion consensus revenue estimate for the current year represents a 4.4% increase from the same period last year. The stock has gained 69.3% in price over the past year and 51% over the past nine months.
In terms of forward non-GAAP P/E, ORCL’s 20.51x is 20.5% lower than the 25.79x industry average. In addition, its 16.16x forward EV/EBIT is 21.5% lower than the 20.58x industry average.
ORCL's POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
ORCL has also rated B for Value, Stability, and Sentiment. Within the Software – Application industry, it is ranked #10 of 162 stocks. To see additional POWR Ratings for Momentum, Quality, and Stability for ORCL, click here.
AstraZeneca Plc (AZN)
London-based AZN is a global pharmaceutical company that develops, produces, and markets prescription medications in oncology, cardiovascular, renal and metabolism, respiratory, infection, neuroscience, and gastroenterology. The company has gained popularity for its COVID-19 vaccines, which are sold under the brand names Covishield and Vaxzevria.
Last month, ENHERTU (fam-trastuzumab deruxtecan-nxki) received Breakthrough Therapy Designation from the Food and Drug Administration (FDA) in the United States to treat adult patients with unresectable or metastatic HER2-positive breast cancer who have received one or more prior anti-HER2-based regimens. ENHERTU is a HER2-directed antibody-drug conjugate (ADC) developed by AZN and Daiichi Sankyo Company, Limited.
During the second quarter, ended June 30, 2021, AZN’s total revenue increased 31% year-over-year to $8.22 billion. Its gross profit surged 14% year-over-year to $6.03 billion, while its cash and cash equivalents grew 174.4% from the prior-year quarter to $15.57 billion. The company’s net income came in at $550 million over this period. Its EPS amounted to $0.06, compared to a $0.25 loss per share in the prior-year period.
A $3.27 consensus EPS estimate for the current year represents a 62.7% improvement year-over-year. Likewise, the $35.98 billion consensus revenue estimate for the current year represents a 35.2% increase from the same period last year. The stock has gained 27.7% in price year-to-date and 11.4% over the past three months.
In terms of forward Price/Sales, AZN is currently trading at 5.59x, which is 30.7% lower than the 8.06x industry average. Also, in terms of its forward EV/Sales, the stock is currently trading at 5.99x, which is 13.4% lower than the 6.92x industry average.
It is no surprise that AZN has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock also has a B grade for Growth, Stability, and Value. In the Medical-Pharmaceuticals industry, it is ranked #12 of 203 stocks.
Beyond the POWR Ratings grades I have just highlighted, one can view the AZN ratings for Momentum, Quality, and Sentiment.
ORCL shares were trading at $96.14 per share on Friday morning, up $0.51 (+0.53%). Year-to-date, ORCL has gained 50.91%, versus a 26.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.