LLet’s talk for a moment about growth versus value. In stock markets, this marks the fundamental divide in investment strategies; growth stocks are those expected to outperform the markets, while value stocks are those considered undervalued with relatively high upside potential. The two categories may overlap considerably – after all, no investor jumps into a stock if they don’t think its value will rise – but they highlight a difference in market approaches. Value investors generally envision a multi-year timeline of stock appreciation, while growth investors generally expect a faster and higher rate of return.
These different perspectives are sometimes accompanied by different economic conditions. A growth equity approach works best in a low interest rate, low inflation environment – which we have enjoyed for the better part of a decade. But the economy is changing now. Inflation is on the rise, the yield on 10-year Treasury bonds has exceeded 1.7% and the Federal Reserve should start raising rates as soon as possible. In short, we are about to see a turn to inflation and higher interest rates – conditions that tend to benefit value stocks.
We can skip over this change and look at value stocks. Wall Street analysts are beginning to identify solid value plays investors should follow, and we can use TipRanks data to get the details of their picks. So here are two value stocks that analysts say are buy propositions.
The first value stock we look at is Vontier, a mobility-focused technology company. That is to say, Vontier’s brands offer technological solutions to the problems of the modern transport industry. From car washes and traffic assistance to premium equipment, fleet management, engine maintenance and diagnostic tools, Vontier strives to ease the speed bumps as the world goes by. from the speed of fossil fuel combustion engine vehicles to cleaner, more efficient and renewable vehicles. – petrol cars.
Vontier was created in October 2020, separating from Fortive Corporation. It now has more than 150 locations worldwide and had revenue of $2.7 billion in 2020. The company has already recorded revenue of $2.2 billion for 2021. For l Looking ahead, the company expects fourth-quarter earnings to be in line with third-quarter results, in the range of 77 cents to 81 cents.
In the meantime, the VNT stock is down about 20% from its peak in early September of last year. The share price tumble comes as the company has finished digesting its mid-September acquisition of DRB Systems, a software company that provides solutions to the car wash industry for point-of-sale and the workflow. Vontier expects this acquisition to add 4 to 5 cents to 2021 earnings and generate some $170 million in revenue for the final quarter.
Covering Vontier for Evercore ISI, analyst David Raso describes the title as one of our favorite value games. In support of this, he writes: “VNT stock was inexpensive in absolute/relative terms when it was spun off from Fortive about 15 months ago. Since then, the EPS consensus estimate of 21 per VNT went from $2.42 to now $2.85 (+18%), ~$2.50 to now $3.01… VNT peer discounts not only remain extreme (our SOTP for VNT takes comfortably support a stk over $50), but have widened since the spin.
In light of these comments, Raso rates Vontier as an outperformer (i.e. a buy), and his price target of $42 implies an upside of around 40% for the coming year. (To see Raso’s track record, Click here)
Overall, there are 3 analyst opinions on record for this stock, and they all agree – it’s one to buy, which is a unanimous Strong Buy consensus. The shares are priced at $30 and their average target of $43.33 indicates an upside of around 44% year over year. (See VNT stock forecast on TipRanks)
The next stock on our list is a well-known name in winter sports and leisure equipment. Polaris is probably best known for its snowmobiles, but also manufactures and markets motorcycles, ATVs, and more recently, neighborhood electric vehicles. The company has the advantages of an established name and loyal customer base, including valuable vehicle contracts with the US Department of Defense.
The past two years have been volatile for Polaris. This is to be expected, as this is an original equipment manufacturer that makes products for the discretionary spend/leisure market. It has been exposed to severe headwinds – pandemic shutdowns in 2020, supply chain and labor disruptions in 2021 – that have made it difficult to pull even as consumers started spending more and even as the business of outdoors have taken a premium.
A look at earnings and stock prices will help tell the story. In the first 9 months of 2020, Polaris recorded total sales of $4.87 billion, which increased to $6.03 billion in the first 9 months of 2021. In the third quarter, however, profits fell 30% year over year from $2.85 per share to $1.98. . The shares, which peaked at over $140 in April last year, have fallen 21% since then.
Polaris is now trading at levels “too cheap to ignore”, according to Morgan Stanley’s Billy Kovanis. The analyst analyzes the current situation and outlook for Polaris and sees many opportunities for investors.
“We expect earnings growth of 7% in 2022 and FCF of approximately $650 million, representing a very favorable return of approximately 10% FCF. In addition, earnings estimates for 2022 continued to be reduced over the past 6 months, reducing risk to earnings estimates in 2022. Additionally, the market has continued to reduce the Polaris multiple, which is another positive as it removes potential overhang risk of multiple compression in the future… We like the setup here,” Kovanis said.
Consistent with his bullish approach, Kovanis rates Polaris shares as overweight (i.e. buy) and his price target of $150 suggests roughly 32% upside potential for the year to come. to come. (To see Kovanis’ track record, Click here.)
Overall, the Strong Buy consensus here is based on 10 reviews, which includes 8 buys versus just 2 taken. The average target of $148.6 is virtually the same as Kovanis’ target. (See Polaris stock forecast on TipRanks)
To find great ideas for value stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a recently launched tool that brings together all of TipRanks’ stock information.
Warning: The views expressed in this article are solely those of the analysts featured. The Content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.