Value stocks have fallen out of fashion during the current bull market, severely lagging the performance of high-growth stocks. However, the evolving economic climate may soon once again shift investor attention away from growth and toward value. The U.S. Federal Reserve is planning to shrink its balance sheet by $1.4 trillion over the next four years. According to LPL Financial, large-cap growth stocks have historically been the best-performing asset class for investor during similar periods of Fed tightening. Bank of America recently named the following 10 stocks as its “Value 10” top value stock picks.
1. American Airlines
Analyst Andrew Didora[WD] says U.S. airlines are the most profitable in the world, generating 45 percent of global airline profits despite accounting for just 23 percent of revenue per passenger miles. Didora says American Airlines Group Inc. (AAL) should continue to benefit from a boost in corporate travel spend and higher corporate pricing as a result of tax reform. Two-thirds of American’s revenue comes from corporate fairs, making it a prime beneficiary of those trends. AAL stock has a price-to-earnings ratio of just 9.8. Bank of America has a “buy” rating and $66 price target.
2. Allstate
Analyst Alison Jacobowitz[WD] says second-quarter catastrophe losses through the month of May are in-line with Bank of America’s projections, but she says investors should focus more on strength in the company’s underlying property and casualty underwriting margins. Property and liability premium growth was 5 percent in the first quarter, double the 2.5 percent growth reported in 2017. Jacobwitz is projecting a return on equity of between 14 and 15 percent over the next several years. ALL stock has a PE ratio of 9.8. Bank of America has a “buy” rating and $113 price target.
3. AutoZone
Analyst Elizabeth Suzuki[WD] says AutoZone, Inc. (AZO) is simply too cheap to ignore. Despite the company maintaining its market share and growing its number of stores by 3 percent annually, Suzuki says AZO stock still trades at a significant discount to its peer group. Suzuki predicts AutoZone’s sales growth will re-accelerate in coming years, triggering earnings multiple expansion. She says the auto parts market should benefit from a glut of new cars reaching the six-year-old mark starting in 2019. Autozone has PE ratio of 13.5. Bank of America has a “buy” rating and $850 price target.
4. D.R. Horton
Analyst John Lovallo II[WD] says he is “as bullish as ever” on U.S. homebuilders considering the strong, consistent cash flows and solid balance sheets of companies like D.R. Horton, Inc. (DHI). Lovallo says U.S. homebuilders are priced as if the U.S. economy is headed toward another severe recession and housing market collapse, but there is no evidence of either. Bank of America’s 2019 earnings per share projection is $4.90, about 12 percent above consensus expectations. DHI stock has a 13.4 PE ratio. Bank of America has a “buy” rating and $74 price target.
5. Kraft Heinz
Analyst Bryan Spillane[WD] says Kraft Heinz Co. (KHC) investors should expect a difficult second-quarter earnings report, but downside is limited given the stock’s attractive valuation. Spillane says Kraft Heinz should continue to leverage its scale advantages to drive margins higher and expand its international business. While Spillane is calling for a 1.7 percent decline in sales growth in the second quarter, he says growth will pick up in the second half of the year. KHC stock has a 6.9 PE ratio. Bank of America has…
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