Value stocks are ruling the S&P 500 again following their standout run last year. And analysts are picking their favorites for the year.
Analysts think nine stocks in the S&P 500 Pure Value Index, including Dish Network, General Motors and Southwest Airlines, will jump 35% or more in the next 12 months, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
This makes them a standout among "cheap" value stocks. And value stocks are already where the action is. The SPDR Portfolio S&P 500 Value ETF is up 2.9% this year, while the SPDR Portfolio S&P 500 Growth ETF is flat. And over the past 12 months, value stocks are only down 5.6%, while growth rates have cratered nearly 28%.
Some think many factors driving value stocks are still in place for 2023.
"Interest rates (will) likely (be) higher for longer, which should favor value style and stock pickers," said Kevin Dreyer co-chief investment officer of Value at Gabelli Funds.
Value Stocks Keep Their Mojo
The power of value stocks isn't slowing down. Seven of the top 10 diversified ETFs this year are either value or dividend focused, says Morningstar Direct.
Value stocks have several factors going for them. For one, their valuations are lower. That's attractive to investors as the S&P 500 is discounted to factor in higher interest rates. The SPDR Portfolio S&P 500 Value ETF sports a trailing P-E ratio of just 15.6 times and a price to sales ratio of 1.56, says Morningstar Direct. That's considerable cheaper than the SPDR Portfolio S&P 500 Growth ETF's 18.2 times P-E and 2.6% price to sales.
Additionally, value stocks tend to pay higher dividends. The SPDR Portfolio S&P 500 Value ETF yields 2.0%, topping the 1.21% yield of growth stocks.
But which pure value stocks in the S&P 500 do analysts like most?
Analysts' Favorite S&P 500 Value Stock: Dish Network
Analysts continue to pound the table for satellite communications stock: Dish Network.
Wall Street analysts who follow the stock say it will be worth 32.43 a share in 12 months. And if that's right, it would mark 109% upside from its current price. If right, this is the value stock that would outperform all others in the S&P 500.
So far this year, investors seem to agree. Shares of Dish are up nearly 11% just this year. It's important, though, to point out shares are still down nearly 53% in a year's time. And the company is trading for just 5.2 times its earnings in the past 12 months. That's a fraction of the roughly 19-times P-E of the S&P 500 at large.
But it's a value stock for a reason, as it's is seeing shrinking profit. Analysts think the company's 2022 profit will be nearly 31% below 2021's levels. Additionally, profit is seen falling another nearly 36% in 2023.
Value Investors See Opportunity In Cheap
A major snafu in winter travel operations at Southwest Airlines doesn't seem to scare off investors. Analysts think value-priced shares of Southwest will be worth 34.69 a share in 12 months. That implies upside of nearly 41%.
So far this year, shares are up 3% which is something surprising given the size of its problems with flight cancellations in December. And the stock, which trades for 26 times trailing earnings, isn't as cheap as many in the S&P 500 Pure Value index. But the stock is still down nearly 21% in 12 months. And analysts think the company will earn $2.13 a share in 2022, up from a loss of $2.15 a share in 2021.
Another value-stock favorite in the wreckage is GM. The automobile maker's shares have languished despite a push to move into electric vehicles. Shares are down more than 40% in a year's time, only slightly worse than those of archrival Tesla. But unlike Tesla, which still trades for 35 times its profit in the past 12 months, GM is trading for just 6-times earnings in the same period.
That's enough, it seems, to win over analysts to GM's side. Wall Street analysts insist the S&P 500 Pure Value stock GM will trade for 50.83 in 12 months. That would be a remarkable gain of more than 40%.
Analysts could very well be too bullish on these stocks. But if the past year taught investors anything, it's that value can easily beat growth stocks for a considerable amount of time.
Top Analyst Picks In S&P 500 Pure Value Index
Based on 12-month price targets
| Company | Ticker | Implied upside | Sector |
|---|---|---|---|
| DISH Network | 108.7% | Communication Services | |
| Warner Bros. Discovery | 83.2% | Communication Services | |
| Signature Bank | 46.0% | Financials | |
| General Motors | 41.5% | Consumer Discretionary | |
| Southwest Airlines | 40.6% | Industrials | |
| Global Payments | 39.1% | Information Technology | |
| Lumen Technologies | 36.2% | Communication Services | |
| Delta Air Lines | 35.1% | Industrials | |
| Alaska Air Group | 35.0% | Industrials |
Sources: S&P Global Market Intelligence, IBD
Follow Matt Krantz on Twitter @mattkrantz
