What we think the naysayers are missing is that the dismal downturn over the first nine months of the year discounted a tremendous amount of bad news that has yet to materialize, suggests John Buckingham, editor of The Prudent Speculator.
No doubt, some will argue that the S&P 500 trading at 16 times the 2023 EPS estimate and yielding 1.8% is not a bargain, but we do not invest in indexes. We very much like that our portfolio boasts a forward P/E ratio of 11.3 and a 2.9% dividend yield.
Yes, we have to be braced for heightened volatility, especially as traders are fixated on the Federal Reserve, but we continue to think that if the undervalued businesses we own do well their stocks eventually will be rewarded. Here's a look at three value-oriented stocks that have declined 30% to 50% this year.
Digital Realty (DLR) is an owner and manager of technology-related real estate. With data centers in 50 major metro markets, DLR offers customers a robust global ecosystem that utilizes more than 1,000 tel com providers, ISPs, content providers and enterprises to provide carrier-neutral interconnection facilities.
The primary blame for the 40%+ slide in the stock price this year is the spike in interest rates that has hit the REIT space hard. Rising capital costs will likely constrain growth, but should benefit the competitive position of the incumbents and we like that DLR’s consecutive annual streak of dividend hikes extended to 17 years with the most recent bump in March.
With the yield at 4.9%, we think the two year consolidation in the stock presents a fine opportunity to pick up utility-like exposure to the proliferation of interconnectivity and the world’s ever-increasing reliance on data.
Shares of global automotive giant General Motors (GM) are off by a third this year, even after rebounding more than 20% in October, which included the release of the company’s Q3 financial results.
GM posted adjusted EPS of $2.25, well above the consensus analyst estimate of $1.89, even as revenue of $41.9 billion was short of expectations. Full-year forecasts were reaffirmed with adjusted EPS of $6.50 to $7.50 and adjusted free cash flow of $7 billion to $9 billion.
The investment in its future (EVs, Autonomous, etc.) is well funded, but despite the much-improved GM today and a bright long-term outlook, shares change hands at just 6.3 times next 12-month earnings projections.
Homebuilder MDC Holdings (MDC) has been a major beneficiary of home ownership trends that were exacerbated by the Pandemic, but shares have reversed sharply in price in the current rising-rate environment and are now trading at just half of the Spring 2021 high.
No doubt, buyer psychology is being adversely impacted and near-term headwinds will most likely continue to blow, but we believe the outlook for new home construction is positive in the long run. Despite the bad news of late, MDC’s backlog stands at $3.2 billion, with a unit backlog of 5,338 and an active subdivision count of 220.
Given that we still think that there is a shortage of housing in the U.S., while elevated rents make home ownership desirable, the stock price looks very inexpensive. Consensus EPS estimates for 2023 and 2024 are still above $4.00. Not bad for a $30 stock with a 6.6% dividend yield.