Some hidden gems still exist within the large numbers of stocks trading at sky-high prices, according to Wolfe Research. Since last fall, a tech-led rally has propelled the equity market into the stratosphere. Stocks are now hovering near their all-time highs thanks to stocks that are adjacent to artificial intelligence. Consider that Nvidia is up roughly 78% this year. But to some investors, these lofty valuations are cause for concern — and could signal the beginning of a brewing asset bubble. With that in mind, all hope is not lost. There are still some stocks trading at attractive levels, despite the market’s recent run-up, according to Wolfe Research. In a recent note, the research firm released its list of top deep value companies, which have strong earnings and balance sheets. To be included in the basket, the stocks had to meet the following criteria: High dividend: Dividend yield at least two-thirds of the company’s AAA bond yield Strong earnings: Earnings yielding more than twice the company’s AAA bond yield Low debt: Debt-to-tangible book value less than 1 Forward price-to-earnings ratio of 10 or less With a dividend yield of roughly 5%, automobile manufacturer Ford Motor was one name on the deep value list. The company’s 2024 free cash flow yield is estimated at around 4%, per Wolfe. Ford has slipped less than 1% this year. Last month, the company beat Wall Street’s expectations for the fourth quarter and issued strong guidance for 2024. Marine shipping stock Star Bulk Carriers also made the list. The company reported revenue for the fourth quarter that came in ahead of analysts’ expectations, per FactSet, and it declared a cash dividend of 45 cents per share. The stock, which is up nearly 12% in 2024, pays a dividend yield of 6%. Alliance Resource Partners sports a 14.2% dividend yield, but shares are down more than 7% in 2024. The diversified energy company’s free cash flow yield for 2024 is approximated at -16%. Alliance Resource Partners, which is a limited partnership, recently announced a cash distribution of 70 cents per unit for investors. This payment was made just last month. Other names on the list include fashion retailer Buckle and real estate investment trust Cousins Properties .
These deep value stocks have strong balance sheets and solid earnings, Wolfe Research says
Mar 15, 2024
