Value stocks

Do you have $5,000? Buy and hold these 3 valuable stocks for years

At the other end of growth investing is value investing, a category made popular by Warren Buffett. Buying stocks in solid companies that are trading for less than you think they are worth can be a lucrative investment strategy – if you have the patience. It certainly helped make the Oracle of Omaha one of the best investors of all time.

Do you have $5,000 ready to invest and a penchant for research value stocks? If so, it would be wise to consider the following three companies.

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1. Crocodiles

Crocodile ( CROX 0.94% ), maker of the popular foam clogs, has been a surprise winner during the pandemic as consumers prioritize affordability and comfort. Sales in 2021 jumped 67%, while net profit jumped 132% from the previous year. The company also posted a gross margin of 63.4% in the fourth quarter, which is incredible considering that the average selling price of a Crocs product is just $25.71.

This remarkable performance, however, did little to boost the valuation of Crocs, which is currently at a level price/earnings ratio (P/E) of only 5.9. It is less than peers like Skechers and far below industry heavyweights Nike. In fact, shares of Crocs are down 63% since peaking in mid-November. It’s a booming brand with a current valuation that doesn’t make sense considering the fundamentals.

By 2026, management estimates that Crocs, including the recently completed company acquisition of HeyDude, will generate $6 billion in annual sales. That’s almost triple the 2021 total of $2.3 billion. And by then, free cash flow is expected to top $1 billion a year. Maintaining brand relevance with new product introductions and ongoing celebrity collaborations, while driving growth in Asia, will help propel Crocs forward.

Based on the market cap of $4 billion on March 7, Crocs is selling for four times the estimated free cash flow for 2026. That’s a ridiculous bargain that investors might want to jump on right now.

2. Lowe’s

With 12-month sales of $151.2 billion, Home deposit is the undisputed leader in the home improvement industry. Its P/E ratio of 21 exceeds that of its smaller competitors Lowe’s ( LOW -1.77% )with a P/E of 19. But the latter is taking steps that could help it close the gap with its biggest competitor, and investors may want to pay attention.

Lowe’s CEO Marvin Ellison joined the company in 2018 after 12 years in senior roles at Home Depot. And with his arrival, Lowe’s began to relentlessly focus on a long overdue strategy: catering to business customers. While Home Depot derives nearly half of its revenue from pros, Lowe’s generates about 25% of sales from this group of lucrative customers who spend more money and visit stores more often.

Being behind Home Depot leaves plenty of opportunities for Lowe’s to gain market share. Initiatives such as new store layouts, improved stock availability and a Pro loyalty program should help strengthen Lowe’s position with professionals. This should lead to improved sales, margins and profitability, which should support share price appreciation.

Over the past five years, Lowe’s has grown its net income at a faster rate than Home Depot (174% vs. 107%). And the former’s stock price has outperformed that of the biggest competitor over the past one, three, five and 10 years. Still, the stock is trading at a slight discount to Home Depot, leaving investors with a significant edge.

3. Target

Compared to retail walmart (WMT -0.76% )which trades for a P/E multiple of 29, Target (TGT 0.92% )with its P/E of only 15, looks like an absolute steal. And the title yields 1.7%. The momentum that began during the pandemic has shown no signs of abating.

In the most recent fiscal year (ended Jan. 29), Target’s revenue of $106 billion was more than 35% higher than just two years ago. Consumers are increasingly turning to the largest retailer to meet all of their shopping needs.

Target continues to benefit immensely from its focus on delivering an omnichannel experience, which is table stakes for any retail business these days. The company’s stores act as local hubs. In fact, in the last quarter, 96.3% of sales were made by a store, even though 21.8% of sales were made through digital channels. This situation reduces logistics costs while allowing wide availability of stocks for customers.

For fiscal 2021, same-store sales jumped 12.7% year-over-year, with all five merchandise categories posting double-digit gains. And over the past two fiscal years, Target has seen mid- to high-teens revenue growth, the fastest rate in at least 17 years. These gains far exceeded those of Walmart.

Over the long term, however, growth is expected to moderate to mid-single digits, while earnings per share are expected to grow in the high single digits. But if you combine that with a generous dividend and buyback program, buying Target stock can be an obvious decision.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.