Value stocks

Top Q2 2022 value stocks

Value investing is a type of investing advocated by investor Warren Buffett. Value stocks should trade at a price below their intrinsic or book value.

When identifying value stocks, we look for metrics such as a price-to-book (P/B) ratio of less than 1 and a price/earnings ratio (P/E) less than 20. A low PEG ratio and dividend yield add value too.

Stocks that trade below their intrinsic value do so for a reason. Many of these stocks have been affected by COVID-19 or the Russian war, so they come with risks.

In the uncertain environment of inflation and tighter monetary policy, investors abandoned technology and growth stocks in favor of safer options. This bodes well for value stocks, but investors need to do their due diligence and understand the business before rushing to buy stocks.

Here is a selection of stocks in which we see value.

Danaos Corporation (NYSE: DAC)

Danaos Corporation (NYSE: DAC) is one of the largest independent container ship owners in the world. Operating in the shipping industry, Danaos is a $2 billion company with a 2.9% dividend yield operating in the shipping industry.

Since COVID-19 has become more manageable, the economy has opened up and demand for shipping has increased. Nevertheless, many problems remain.

The COVID-19 pandemic has disrupted the shipping industry. Ports and shipping lanes are congested or closed, there is a shortage of containers and general supply chain disruption continues.

Today, the cost of shipping items around the world is at an all-time high. While that alone should be a temporary issue to overcome, soaring fuel prices are likely to keep prices high. And with the Russian war now taking its toll, port bottlenecks remain.

However, financial metrics for DAC stock present an attractive valuation picture.

Financial measures of Danaos DAC shares

Looking at DAC stock debt levels, the company has managed to shrink this year on year.

In 2018, the debt stood at $1.6 billion. In 2020, this amount had fallen to $1.4 billion and in 2021, it reached $1.3 billion.

This shows that the company has effectively reduced its debt.

Given that Danaos has simultaneously increased revenue and earnings year over year, DAC stock looks heavily undervalued with a P/E of 1.4 and a P/B of 0.7.

The company recently announced an order for two new 7,100 TEU container ships, which it will receive in 2024.

Risks associated with investing in Danaos

As the pandemic loosens its grip, shipping rates should begin to drop.

Russia’s war could discourage globalization, prompting companies to relocate their supply chains closer to home.

Moreover, there is a good chance that the war will lead to a global recession, reducing the demand for container shipping from the current level.

Buying undervalued stocks when they’re out of fashion is never easy, but it’s often the best time to grab a bargain.

Avnet, Inc. (NASDAQ:AVT)

Avnet, Inc. (NASDAQ: AVT) creates electronic components to help improve supply chain and global distribution.

Avnet’s extensive product portfolio includes amplifiers, antennas, batteries, circuit connectors, memory chips, processors, resistors and many other components.

The company has been around for over 100 years. Therefore, it is very well established and integrated into our globalized supply chain. As technology is still a growing and thriving industry, Avnet is unlikely to go away anytime soon.

Additionally, Avnet’s financial metrics look attractive.

Financial Metrics of Avnet AVT Shares

Before COVID-19 disrupted the world, Avnet had consistent revenue of around $19 billion. Last year, it returned to that level after falling to $17 billion in 2020.

A PEG of 0.5 shows it still has room to grow, and a P/S of 0.2 represents good value for money. Avnet’s net debt is constant and does not appear to be increasing.

Photronics, Inc. (NASDAQ: PLAB)

Photronics, Inc. (NASDAQ: PLAB) manufactures semiconductor photomasks with photographic plates of high-precision quartz or glass containing microscopic images of electronic circuits.

As the global shift to electrification has caused demand for semiconductors to skyrocket, many electric vehicle and technology stocks have become overvalued.

Phototronics is a semiconductor stock that appears to be trading below its book value.

Photronics PLAB Stock Financial Metrics

This is a company that shows consistent growth in revenue and net profit. The P/B ratio suggests the stock is trading below its book value. Meanwhile, the stock is still off its 52-week high of $20.30. The company’s debt to cash ratio is also healthy, with $314.2 million in cash and $101.77 million in debt.

EuroDry Ltd. (NASDAQ: EDRY)

EuroDry Ltd. (EDRY) owns and operates dry bulk carriers that transport large bulks such as iron ore, coal and grain and minor bulks such as bauxite, phosphate and fertilizers. With all of these products in tight supply and growing demand, EuroDry’s services are needed.

The company has a fleet of 10 vessels. During the fourth quarter, nine ships earned an average of $29,100 per day.

Earlier this month, one such vessel, the Molyvos Luck, entered into a new 11-13 month charter contract at a daily rate of $25.7k.

In the fourth quarter of 2021, EuroDry achieved total net sales of $22.3 million. This led to diluted EPS of $4.29. For the full year, EuroDry had total net sales of $64.4 million and diluted EPS of $11.88.

EuroDry is a relatively new entrant to the market, having only been founded in 2018. However, its financial statistics are encouraging and the company appears to be making significant progress.

Financial measures of the Eurodry EDRY share

EuroDry’s earnings growth turned positive in 2021 after a negative year in 2020. Its P/B of 0.7 and P/E of 1.8 indicate the company is undervalued. This is a sign that the stock price and the market still have room for growth. In addition, the EDRY share price is up 60% since the start of the year.

Canfor Corporation (TSE:CFP)

Canfor Corporation (TSE: CFP) is a forest products company based in Vancouver, British Columbia. It transforms almost 100% of its wood fiber into useful products. This includes solid wood, pulp and paper, and green energy pellets.

Canfor has a market capitalization of $3.4 billion and its financial metrics suggest it is currently undervalued.

Canfor CFP Stock Financial Metrics

Canfor posted excellent growth in 2021 with positive revenue growth and even better earnings. This allowed cash flow to increase by 85.1% year over year. The P/B value is slightly above 1, but that’s to be expected in an inflated market.

Canfor’s fourth-quarter earnings report missed analysts’ estimates as disruption continued to plague the industry in the near term. This includes supply chain issues, transportation issues and the scarcity of fiber supply in Canada. Of course, inflation also puts pressure on margins.

However, it is at times like these that the best deals can be struck, and for risk-tolerant investors, CFP shares can prove a lucrative long-term investment.

Spartan Delta Corp (TSE:SDE)

Spartan Delta Corporation (TSE: SDE) is a Canadian oil and gas stock. The company is gaining recognition from industry investors after demonstrating impressive production in the fourth quarter.

Spartan’s revenue in 2021 increased by more than 500%, from $96 million in 2020 to $608 million.

Spartan Delta SDE Stock Financial Metrics

Oil and gas stocks can be difficult to value, and finding profitable small caps is even harder. Spartan Delta has been growing exponentially since 2020 and looks undervalued with a P/E of 2.1 and a P/B of 1.

However, he has a large debt of $442.36 million compared to his cash position of $1.25 million.

Nevertheless, the total value of Spartan’s assets exceeds $1.7 billion. Therefore, in the worst case scenario, she could clear her debt quite easily.

Spartan acquired Velvet Energy in August and is now reaping the rewards with a 56% increase in average production.

Today, the company is exploring three profitable and growing revenue streams in the form of natural gas, natural gas liquids and condensate/light oil.

Spartan Delta’s free cash flow generating asset bases are concentrated in Deep Basin and Montney. Its production in the Deep Basin reached around 40,000 BOE per day, just beating Montney at 30,000 BOE per day. Operating costs are low, with potential for production expansion.

Spartan’s 2022 guidance calls for average production of between 68.5,000 and 72.5,000 boe per day (40% oil and NGLs) and capital expenditures of approximately $330 million.