Growth stocks have delivered a stellar performance since the stock market retreat in mid-March. In fact, the broader market’s skyrocketing rally has been driven primarily by growth stocks in the technology space. However, many analysts fear that the markets may now have entered bubble territory and that that danger has yet to register with investors. If the markets start correcting, they suggest, overpriced growth stocks will witness a major pullback.
We think that to hedge against a major pullback, it could be wise to invest in value stocks that are fundamentally sound and hold the potential to deliver solid returns in the long run. Many investors have already started rotating away from pricey growth stocks and into fundamentally sound bargains. This is evidenced by SPDR Portfolio S&P 500 Value ETF’s (SPYV) 6.2% returns year-to-date versus the SPDR Portfolio S&P 500 Growth ETF’s (SPYG) 1.4% gains.
CVS Health Corporation (CVS), Gilead Sciences, Inc. (GILD), and Honda Motor Company, Ltd. (HMC) are currently trading below their peers in terms of price/sales and price/earnings. These companies, we believe, have solid business models and are constantly innovating to stay ahead of the game.
CVS Health Corporation (CVS)
CVS delivers integrated healthcare services in the U.S. The company has operations in the retail pharmacy and pharmacy services segments. Its stock has gained 8.9% over the past six months to close yesterday’s trading session at $69.64.
CVS recently completed administering its first round of COVID-19 vaccine doses at nursing facilities. The company plans to administer COVID-19 vaccines at more than 80 pharmacy locations in Florida.
In terms of non-GAAP forward price/earnings, CVS is currently trading at 9.4x, 61.5% lower than the industry average 24.58x. In terms of forward price/sales, CVS is trading at 0.33x, 96.66% lower than the industry average 9.90x.
CVS is expected to see a revenue growth of 2.4% for the quarter ended March 31, 2021 and 4.2% in 2021. Its EPS is estimated to grow 8.3% in 2022 and at a rate of 3.8% per annum over the next five years.
CVS’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
It has an A grade for Value and B for Stability. In the B-rated, 5-stock Medical- Drug Stores industry, it is ranked #1.
In total, we rate CVS on eight different levels. Beyond what we stated above, we have also given CVS grades for Quality, Sentiment, Momentum, and Growth. Get all the CVS ratings here.
Gilead Sciences, Inc. (GILD)
GILD develops, researches and markets medical treatments for a variety of health conditions. The company focuses primarily on AIDS, liver diseases, cardiovascular diseases, and respiratory issues. GILD has returned 6.3% over the past three months and closed the last trading session at $63.68.
The company is collaborating with Gritstone Oncology, Inc. to research and develop a vaccine-based cure for HIV/AIDS. It is also pursuing a cure for Chronic Hepatitis B virus in partnership with Vir Biotechnology, Inc.
In terms of forward price/earnings, the stock is currently trading at 8.99x, which is much lower than the industry average 24.58x. The stock is trading at a discount in terms of price/sales also (3.25x vs. 9.90x).
GILD’s revenue is estimated to increase 20.5% for the quarter ended March 31, 2021. The company’s EPS is expected to rise 20.2% for the quarter ended March 31, 2021, and 58.6% for the quarter ended June 30, 2021.
The POWR Ratings are also high on GILD. it has an Overall Rating of A, which translates to a Strong Buy. GILD also has Value and Growth ratings of A along with Momentum and Quality ratings of B. In the 487-stock Biotech industry, it is ranked #2.
Click here to see the additional POWR Ratings for GILD ( Stability, and Sentiment).
Honda Motor Company, Ltd. (HMC)
HMC develops, manufactures, and markets automotive vehicles, such as motorbikes and cars. The company has worldwide operations. HMC’s stock price has increased 12.5% over the past six months and its last closing price was $28.04.
HMC recently hit its 100,000-car production milestone in Vietnam. The company has also begun selling its new model N-ONE mini-vehicle in Japan.
HMC’s non-GAAP forward price/earnings of 12.25x is 39.9% lower than the industry average 20.38x. The company’s forward price/sales of 0.40x is 70.6% lower than the industry average 1.34x. And its EPS is expected to grow at a rate of 21.8% per annum over the next five years.
HMC’s strong fundamentals are reflected in its POWR Ratings. The company has been accorded an overall rating of A, which equates to Strong Buy. HMC has an A grade for Value, and B for Growth, Stability, and Sentiment. In the B-rated, 53-stock Auto & Vehicle Manufacturers industry, it is ranked #2.
Beyond what we’ve stated above, we have also given HMC grades for Quality and Momentum. Get all the HMC ratings here.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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CVS shares were trading at $70.23 per share on Wednesday afternoon, up $0.59 (+0.85%). Year-to-date, CVS has gained 3.51%, versus a 4.60% rise in the benchmark S&P 500 index during the same period.
About the Author: Aaryaman Aashind
Aaryaman is an accomplished journalist that’s passionate about providing in-depth insights about investing and personal finance. Recently he has been focused on the stock market and he specializes in evaluating high-growth stocks. More...
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