Value stocks

My 3 favorite value stocks to buy in January

Volatility seems to be increasing in the US stock market lately. We are only 10 days away from the start of the commercial year, and the high concentration of technologies Nasdaq Composite Index moved, on average, 1.38% per day, including two days when it fell more than 2% in a single session.

Date of the trading session Nasdaq Compound Daily Movement
January 4 (1.33%)
January 5 (3.34%)
January 6 (0.13%)
January 7 (0.96%)
January 10 0.71%
January 11 1.69%
January 12 1.64%
January 13 (2.23%)
January 14 0.59%
Average displacement over 10 days 1.38 percentage points

Data source: Yahoo! Finance.

Risk-averse investors who prefer stable investment options that let them sleep at night on companies with high growth potential are looking for alternatives. They can find caterpillar ( CAT 1.28% ), Honeywell International (HON)and Kinder Morgan ( KMI 2.40% ) be good choices now. Here’s what makes each of these three value stocks a great buy now.

1. Caterpillar

Caterpillar stock prices have already risen more than 10% year-to-date (YTD), as investors shifted from growth stocks to industrials and energy stocks.

CAT data by YCharts

Caterpillar’s 2021 year hasn’t gone exactly to plan, with the company facing ongoing supply chain issues and a slower-than-expected rebound in the broader economy, which explains its poor overall performance. Yet even with its lackluster results, Caterpillar continues to generate strong profits and plenty of free cash flow (FCF) to support its dividend thanks to high oil and gas prices, demand for raw materials , a healthy residential construction market and improvement. commercial construction market.

Caterpillar has a price-to-earnings (P/E) ratio of 24.5 and a price-to-free cash flow (P/FCF) ratio of 22.7, both close to its five-year median levels.

A lady wears personal protective equipment while working on a machine on a production line.

Image source: Getty Images.


Like Caterpillar, Honeywell is one of the largest and best-known blue chip industrial companies. Honeywell’s largest segment is aerospace, which was hit hard by the COVID-19 pandemic and is still recovering. Its other business units include building products and technologies, such as thermostats, cybersecurity solutions, automated solutions for industrial facilities, chemicals, materials, smart energy, security and productivity solutions. , and more. In short, Honeywell performs many big and small functions that underpin the industrial sector – so it’s no wonder it’s the third most valuable US industrial stock by market capitalization behind United Parcel Service and Union Pacific.

Honeywell updated its guidance for 2021 in its third quarter release. The midpoint of the update projects full-year sales of $34.4 billion, adjusted earnings per share (EPS) of $8.05 and FCF of $5.45 billion. At first glance, the numbers seem quite low given that Honeywell had $41.8 billion in revenue in 2018 and $5.61 billion in FCF. However, Honeywell’s margins are improving and it has successfully fought off inflationary pressures and a slow recovery in many of its business segments. All told, Honeywell is well prepared for a strong 2022. Its business is more streamlined than ever, suggesting that once the pandemic is over, Honeywell will be in the best shape of its life.

3. Kinder Morgan

Like Caterpillar and Honeywell, Kinder Morgan is expected to have a strong 2022. Its guidance for 2022 suggests solid earnings growth and plenty of cash to support a dividend increase from $1.08 per share per year to $1.11 per share per year (divided into quarterly distributions).

There’s really nothing not to like about Kinder Morgan heading into 2022. Its long-term contract model gives the company a cushion should oil and natural gas prices fall. It maintains a tight cap on spending after making key acquisitions in 2021. And the new dividend increase gives it a dividend yield of 6.4%.

On top of that, Kinder Morgan’s stock is trading below its 5-year median P/E and P/FCF ratios, a rare bargain price for such a high-yielding, low-dividend stock. the forefront of the industry.

Table of CAT PE ratios

CAT PE Ratio Data by YCharts

For these reasons, Kinder Morgan is my top dividend stock to buy for 2022 for investors focused on generating a good dividend yield and less concerned with outperforming the broader market.

A balanced trio

Caterpillar, Honeywell and Kinder Morgan are all well-rounded companies paying attractive dividends that are expected to rise in 2022. Additionally, all three stocks have reasonable values ​​relative to historical valuations, which is not common in the stock market. expensive today.

Equal parts of each stock gives an investor a dividend yield of 3.4%, which is high enough to supplement retirement income or simply generate a significant amount of passive income without having to sell a security.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting 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.