4 Value Stocks to Buy for a Market Rotation

NYSE: BTI | British American Tobacco  Industries, p.l.c.  ADR News, Ratings, and Charts

BTI – The stocks of British American Tobacco (BTI), Waste Management (WM), Centene (CNC) and Ingredion (INGR) delivered impressive results last year by leveraging new forms of digital collaboration to connect, innovate and co-create with their customers. They are currently trading at discounts to their peers and are expected to deliver solid returns as the market’s focus shifts from growth to value. As such, we think investors should at least give these value names a closer look.

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The U.S.  has been grappling with its worst recession in decades. With steep declines in GDP and employment, the country has been one of the worst performing developed economies over the past year. However, the country has been showing signs of recovery since the July-September quarter, with quarterly GDP rising 33.4% at an annualized rate from an extremely low base.

A nationwide vaccination drive and the gradual resumption of industrial and economic activities should lead to a V-shaped U.S. economic recovery this year.  As such, investors  have begun rotating away from expensive growth stocks to potential turnaround candidates.

Following the vaccination announcement in November, most growth stocks, particularly those in the technology space, experienced a sell-off. While most  growth stocks have recovered since then, the anticipated effects of the vaccine drive and the incoming Biden Presidential Administration are expected to again shift investor focus away from those stocks.

Rising concerns over the disconnect between the stock market and the economy is also a factor that will push investors to divert their funds from growth stocks to value stocks to  capitalize on the economy’s recovery and sidestep potential asset bubbles. The beginning of this trend is evident from the iShares Russell 1000 Value ETF’s (IWD) 13.9% gains over the past three months versus iShares Russell 1000 Growth ETF’s (IWF) 5% returns.

British American Tobacco (BTI), Waste Management, Inc. (WM), Centene Corporation (CNC) and Ingredion Incorporated (INGR) are currently trading at discounts to their peers. We think these  stocks are well positioned to effectively manage through the uncertainties and gain with the economic recovery.

British American Tobacco plc. (BTI)

BTI is a multi-category consumer goods company that provides tobacco and nicotine products worldwide. It manufactures vapor and tobacco heating products, oral tobacco and nicotine products, cigars, and e-cigarettes.

BTI’s trailing-12-month P/E of 10.95x is substantially lower than the industry average of 26.24x. In terms of trailing-12-month price/cash flow, the stock is currently trading at 6.80x, 45.5% lower than the sector average of 12.47x.

In November, , BTI announced the acquisition of the nicotine pouch product assets company Dryft Sciences through its U.S. subsidiary. The acquisition will deliver a wider range of nicotine strengths and flavors to adult nicotine consumers. This will significantly strengthen BTI’s portfolio in a fast-growing nicotine category in the U.S.

Also in November, BTI was included in the Dow Jones Sustainability Indices (DJSI) for the 19th consecutive year. This recognizes BTI’s sustainable business practices in promoting corporate sustainability and practicing social responsibility.

Analysts expect BTI’s EPS to grow at 5% over the next five years. The stock has gained 5.1% over the past three months.

How does BTI stack up for the POWR Ratings?

A for Trade Grade

B for Buy & Hold Grade

B for Industry Rank

B for Overall POWR Rating

The stock is ranked #5 of 11 stocks in the Tobacco Industry.

Waste Management, Inc. (WM)

WM is a leading provider of comprehensive waste management environmental services to residential, commercial, industrial, and municipal customers throughout North America. The Company provides collection, transfer, disposal services, and recycling and resource recovery. It is also a leading developer, operator, and owner of landfill gas-to-energy facilities in the U.S.

In terms of forward price/cash flow, WM is currently trading at 15.32x, 4.4% lower than the industry average of 16.03x.

Late last year, WM completed its acquisition of Advanced Disposal for $4.6 billion. This acquisition will expand WM’s footprint and allow the Company to deliver unparalleled access to differentiated, sustainable waste management and recycling services to approximately three million new commercial, industrial and residential customers across the United States.

In December, WM secured a place on CDP’s prestigious ‘A List’ for tackling climate change for the fifth year in a row. This acknowledges the company’s leadership in environmental action in cutting emissions, mitigating climate risks, and developing the low-carbon economy.

WM’s operating revenues have increased 8.4% sequentially to $3.86 billion in the fiscal third quarter ended September 30, 2020. Its income from operating activities has risen 29% sequentially to $680 million over the same period, while its EPS has improved 26% sequentially to $0.92.

Analysts expect WM’s revenues to grow 3.2% year-over-year to $3.97 billion in the fourth quarter ended December 31, 2020. The consensus EPS estimate of $1.02 for the current quarter (ending March 31, 2021) indicates a 9.7% improvement year-over-year. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 12.1% over the past six months.

It is no surprise that WM is rated “Strong Buy” with an “A” for Trade Grade and Buy & Hold Grade, and a “B” for Industry Rank. It is currently ranked #2 of 18 stocks in the Waste Disposal Industry.

Centene Corporation (CNC)

CNC is a multinational healthcare enterprise. The Company serves government sponsored and commercial healthcare programs, focusing on under-insured and uninsured individuals in the U.S. The company operates through two segments: Managed Care and Specialty Services.

CNC’s trailing-12-month non-GAAP P/E of 13.08x is 49.7% lower than the industry average of 25.99x. In terms of trailing-12-month price/sales, the stock is currently trading at 0.38x, significantly lower than the industry average of 7.86x.

CNC completed its acquisition of Apixio, a healthcare analytics company offering Artificial Intelligence (AI) technology solutions in December. The transaction will allow CNC to digitize the administration of healthcare and accelerate innovation and modernization across the enterprise.

It  also completed its acquisition of PANTHERx, a specialty pharmacy in orphan drugs and treating rare diseases in December. This transaction will expand CNC’s comprehensive pharmacy portfolio and will ensure better treatment of patients with complex and rare diseases.

And on January 4, CNC entered into a definitive merger agreement to acquire Magellan Health for $2.20 billion. This acquisition will lead to value creation for shareholders through cost synergies and new growth opportunities.

CNC’s total revenue has increased 53.3% year-over-year to $29.09 billion in the fiscal third quarter ended September 30, 2020. Income from operating activities has risen 389.2% from the year-ago value to $861 million, while its EPS has improved 326.1% from the same period last year to $0.98.

Analysts expect CNC’s revenues to grow 50.5% year-over-year to $28.38 billion in the fourth quarter ended December 31, 2020. A consensus EPS estimate of $1.60 for the current quarter (ending March 31, 2021) represents  an 86% improvement year-over-year. The stock has gained 8.4% over the past six months.

CNC POWR Ratings reflect this promising outlook. It is rated a “Buy” in our POWR Ratings system. It has an “A” for Trade Grade and Industry Rank and a “B” for Buy & Hold Grade. In 8-stock Medical – Health Insurance Industry, it is ranked #7.

Ingredion Incorporated (INGR)

INGR is an ingredients solutions provider. The Company turns grains, fruits, vegetables, and other plant-based materials into value-added ingredient solutions for the food, beverage, animal nutrition, brewing and industrial markets. Its product line includes animal feed products and edible corn oil.

INGR’s trailing-12-month Non-GAAP P/E of 13.04x is 33.3% lower than the industry average of 19.56x. In terms of trailing-12-month price/sales, the stock is currently trading at 0.90x, 34.5% lower than the industry average of 1.37x.

INGR signed an agreement in November to acquire Verdient Foods Inc. This will allow INGR to expand and advance its plant-based proteins specialty growth platform, thereby, revolutionizing food systems for the planet.

INGR’s net sales have increased 11.3% sequentially to $1.50 billion in the fiscal third quarter ended September 30, 2020. Its income from operating activities has risen 35.4% sequentially to $153 million over the same period, while its EPS has improved 39.8% sequentially to $1.37.

Analysts expect INGR’s revenues to grow 1.3% year-over-year to $1.57 billion in the fourth quarter ended December 31, 2020. The company has an impressive earnings surprise history: as it beat the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 13.3% over the past year.

INGR is rated a “Buy” in our POWR Ratings system. It has a “B” for Trade Grade and Industry Rank. In 88-stock Food Makers Industry, it is ranked #30.

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BTI shares were trading at $37.87 per share on Wednesday afternoon, up $0.49 (+1.31%). Year-to-date, BTI has gained 1.01%, versus a 1.61% rise in the benchmark S&P 500 index during the same period.


About the Author: Rishab Dugar


Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More...


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