With the S&P 500 up 30.65% year over year and the Buffett Indicator showing the U.S. stock market as “significantly overvalued” with an implied future return of -2.5% per year, it may feel like there are no more value opportunities left.
Indeed, it’s difficult to find value in a market where near-zero interest rates and aggressive quantitative easing measures have driven up asset prices to eye-watering premiums, even as the underlying economy continues to suffer from a global pandemic, supply chain issues, climate change and semiconductor shortages, just to name a few headwinds.
“The value stocks outside the U.S. are not too bad,” said GMO LLC’s
Jeremy Grantham (Trades, Portfolio) in a recent interview with CNBC. “They are overpriced, but they are going to return over the next 10 years a positive return. Our forecast in the U.S. is for a negative return over the next seven years… I strongly believe that will be accurate.”
However, even if the overall market is overvalued, there are still some potential value opportunities among U.S.-listed stocks. These names have fallen out of favor due to various reasons, but they still appear in the portfolios of several of the Premium gurus followed by GuruFocus, indicating that fund managers are confident in their prospects.
According to the GuruFocus All-in-One screener, a Premium feature, the following five stocks are trading within 10% of their 52-week lows and are owned by at least 20 gurus.
Alibaba Group Holding
Chinese e-commerce giant Alibaba Group Holding Ltd. (
BABA, Financial) is trading for $140.70 per share, which is 1.64% above its 52-week low of $138.43. The stock is down 51% over the past year, and the GuruFocus Value chart rates it as significantly undervalued.
Among the Premium gurus followed by GuruFocus, 44 own shares of Alibaba, including
Baillie Gifford (Trades, Portfolio) with 0.95% of shares outstanding, Primecap Management with 0.58% and
Ken Fisher (Trades, Portfolio) with 0.52%. More gurus have been buying the stock than selling it in recent quarters.
Alibaba’s stock has lost a lot of steam as Chinese regulators have been cracking down on big tech due to antitrust and data security concerns. New regulations are still in the works, and it is unclear how they will affect the profitability and future of Alibaba and other tech companies. Many institutional investors remain confident that once the dust has settled, Alibaba will return to its previous growth trajectory; after all, restricting tech growth would also restrict economic growth. However, everything is still very much up in the air, so the stock has floundered.
One of the world’s largest pharmaceutical companies, Bristol-Myers Squibb Co. (
Among the Premium gurus followed by GuruFocus, 27 own shares of Bristol-Myers Squibb, including Dodge & Cox with 1.28% of shares outstanding, the
Bristol-Myers Squibb is a classic case of the stock market dramatically overreacting to proposed legislation. A bill to allow Medicare to negotiate drug prices with pharmaceutical companies is in the works in the U.S. House of Representatives. If it makes its way through Congress and is signed into law, it is estimated that it could cost the U.S. pharmaceutical industry up to $50 billion in annual revenues. For comparison, the industry generated $539 billion in revenue last year. Considering the fact that 37% of Bristol-Myers Squibb’s revenue is generated outside the U.S., we get a worst-case scenario of 6% revenue loss, assuming the company doesn’t grow even the slightest. Also, more people would be able to afford medication if it was cheaper, which could reduce the revenue impact.
U.S. telecommunications major Verizon Communications Inc. (
Among the Premium gurus followed by GuruFocus, 25 own shares of Verizon, including Buffett with 3.84% of shares outstanding, Pioneer Investments with 0.18% and
Verizon has lagged its major U.S. competitors in terms of postpaid phone additions recently, and investors are becoming more wary of the telecommunications industry in general due to the high investments in new technology required just in order to maintain market share. However, Verizon still has a dividend yield of 4.61%, and 5G adoption is still in its early stages. Thus, the company will likely see better returns on its 5G investments going forward, and in the meantime, investors can enjoy a solid dividend.
American aerospace, weapons and defense company Lockheed Martin Corp. (
Among the Premium gurus followed by GuruFocus, 22 own shares of Lockheed Martin, including
Yacktman Asset Management (Trades, Portfolio) with 0.13% of shares outstanding,
Catherine Wood (Trades, Portfolio) with 0.10% and
Jim Simons (Trades, Portfolio)’ Renaissance Technologies with 0.08%. More gurus have been buying the stock than selling it in recent quarters.
Pandemic-related production breaks have been a cause for concern among Lockheed Martin shareholders, as has a 61 cents per-share charge related to “performance issues experienced on a classified program” that the company reported on its second-quarter earnings. Charges of unknown origin can cause stocks to drop because they represent a huge point of uncertainty. Based on comments from Lockheed’s CEO, it seems the company expects that the reason behind this charge will be value-accretive for the company, but for now, the public is in the dark.
For-profit American health insurance company Humana Inc. (
Among the Premium gurus followed by GuruFocus, 20 own shares of Humana, including the
Vanguard Health Care Fund (Trades, Portfolio) with 1.46% of shares outstanding,
Diamond Hill Capital (Trades, Portfolio) with 0.89% and Pioneer Investments with 0.63%. Gurus were mostly selling the stock in the most recent quarter, though they were mostly buying in the two quarters before that.
Humana has undertaken a variety of humanitarian projects during the Covid-19 pandemic, including “wavier of Medicare Advantage cost sharing, including for primary care and COVID-19 treatment, delivery of meals, masks and preventative tests to our members, in-home assessments, investments in programs to assist underserved communities, and efforts to ease the financial burden for our provider partners,” according to CEO Bruce Boussard. This has perhaps unfairly weighed down market opinion of the company’s ability to generate earnings. The company claims this impact will be washed out by the end of 2021, which should accelerate earnings growth.