Prudent Picks From Three Top Value Experts

&l;img class=&q;dam-image getty wp-image-904629762 size-large&q; src=&q;×0.jpg?fit=scale&q; alt=&q;&q; data-height=&q;640&q; data-width=&q;960&q;&g; General Motors North America President Alan Batey unveils the 2019 Chevrolet Silverado at the 2018 North American International Auto Show in Detroit, Michigan, on January 13, 2018. GM is a value stock pick with impressive Q1 earnings. (Photo by Jewel Samad/AFP/Getty Images)
&l;em&g;T&l;/em&g;&l;em&g;he editorial team at &l;span&g;&l;strong&g;&l;a href=&q;; target=&q;_blank&q;&g;The Prudent Speculator&l;/a&g;&l;/strong&g;&l;/span&g; focuses on long-term value investing; their successful strategy is evidenced by the newsletter&a;rsquo;s rank as the top performing model portfolio over the past four decades. Here, senior editor &l;strong&g;John Buckingham&l;/strong&g; along with &l;strong&g;Chris Quigley&l;/strong&g; and &l;strong&g;Jason Clark&l;/strong&g; &a;mdash; all occasional contributors to&l;strong&g; &l;span&g;&l;a href=&q;; target=&q;_blank&q;&g;;/a&g;&l;/span&g;&l;/strong&g; &a;mdash; share some of their latest value investment ideas.&l;/em&g;
&l;strong&g;John Buckingham, &l;span&g;&l;a href=&q;; target=&q;_blank&q;&g;The Prudent Speculator&l;/a&g;&l;/span&g;&l;/strong&g;
Despite all of the ups and downs, rallies and corrections, and bull and bear markets, the S&a;amp;P 500 has enjoyed a return over the past 92 years of 10.1% per annum, illustrating the rewards available to investors able to stick with stocks for the long term.
Of course, keeping the faith is easier said than done, especially in today&a;rsquo;s sensationalistic media environment where breathless talking heads warn almost daily that doom is imminent.
Indeed, just this year, investors have had to contend with &l;em&g;White House Drama&l;/em&g;, &l;em&g;Rich Valuations&l;/em&g;, &l;em&g;Volatility Spike&l;/em&g;, &l;em&g;North Korea&l;/em&g;, &l;em&g;Trade Wars&l;/em&g;, &l;em&g;Increasing Inflation&l;/em&g;, &l;em&g;Rising Treasury Yields&l;/em&g;, &l;em&g;Fear of an Overheating Economy&l;/em&g;, &l;em&g;Fear of the Next Recession &l;/em&g;and &l;em&g;Fed Rate Hikes &l;/em&g;to name just a few of the headlines that have undoubtedly caused consternation.
To be sure, all of these issues remain outstanding, but that is nothing new as there are always disconcerting events that equities must overcome and the old adage that stocks often climb a wall of worry is hardly a myth.
It is very much steeped in historical fact, given that despite all of the headwinds, value stocks have posted annualized returns of 13.4% and dividend payers have gained 10.6%, dating back to 1927. We also can&a;rsquo;t forget that stocks are not simply vehicles for day traders to push up and down. Equities ultimately represent ownership in corporations that generally become more valuable as their earnings grow.
Meanwhile, our latest recommendations include &l;strong&g;General Motors&l;/strong&g;. The auto and truck maker turned in an impressive Q1, including record earnings in China and from GM Financial.
While the competition is always fierce in the auto industry, and there is definitely some increased input costs to battle, we continue to believe that GM is executing on its core business incredibly well despite ongoing macroeconomic volatility.
We still like its solid balance sheet ($21 billion in cash and marketable securities), cost controls initiative, ability to generate free cash flow and generous capital return programs. The stock now trades for 6 times NTM earnings projections and yields 4.1%.
Real estate investment trust &l;strong&g;Kimco Realty&l;/strong&g; has interests in 475 U.S. open-air shopping centers, comprising 81 million square feet of leasable space concentrated mostly in top major metropolitan markets and housing a diversified stable of tenants.
Shares have been on a roller coaster ride thus far in 2018 (down 20% YTD), but the stock did bounce back on the announcement of solid Q1 financial results.
We are positive on Kimco&a;rsquo;s continued progression of selling lower quality assets, mainly in the Midwest, and focusing on redevelopment and improving leasing volumes.
While the retail environment is still evolving, it may be stabilizing for strip shopping centers, given vacancies were less than anticipated. Kimco Realty currently yields a hefty 7.7%.
&l;img class=&q;dam-image bloomberg wp-image-41876936 size-large&q; src=&q;×0.jpg?fit=scale&q; alt=&q;&q; data-height=&q;640&q; data-width=&q;960&q;&g; A VerizonUp rewards program sign at a Verizon Communications Inc. store in Brea, California, in 2018. Verizon&s;s earnings beat estimates for Q1. (Photo by Patrick T. Fallon/Bloomberg)
&l;strong&g;Verizon&l;/strong&g; stumbled out of the gate this year, but reclaimed some lost ground after the company reported Q1 2018 earnings per share of $1.17 (vs. $1.11 est.) on revenue of $31.8 billion (vs. $31.3 billion est.).
Verizon reported 260,000 wireless and 66,000 Fios internet subscriber net additions. Verizon also reported that it has realized $200 million of the $10 billion, four-year goal for cumulative cash savings.
We think that the tough competitive landscape concerns are largely priced in and that the just-announced Sprint/T-Mobile merger (which would create more pricing pressure) is unlikely to succeed due to regulatory concerns, and believe that Verizon can continue to leverage its vast network to remain competitive over the long term in the wireless market. Verizon also boasts a forward P/E of 10.8 and a yield of 4.8%.
&l;strong&g;Chris Quigley, &l;span&g;&l;a href=&q;; target=&q;_blank&q;&g;The Prudent Speculator&l;/a&g;&l;/span&g;&l;/strong&g;
Shares of &l;strong&g;Bank of New York Mellon&l;/strong&g; enjoyed a great week, rising 7.5% following the financial giant&a;rsquo;s release of Q1 results. Adjusted earnings per share came in at $1.15, which was 19% better than investor expectations.
Assets under custody/administration reached a record $33.5 trillion, which benefited from net new business and the favorable impact of a weaker U.S. dollar. The company had $1.9 trillion directly under management at the end of Q1. During Q1, Bank of New York Mellon repurchased 11 million of its common shares for $644 million and paid $246 million in dividends.
We continue to like that the bank is well capitalized and has a management team that is committed to cost containment and driving growth for the future. The shares are currently trading at 13.0 times NTM adjusted earnings expectations. Our target price has been adjusted upward to $65.
Shares of &l;strong&g;Bank of America&l;/strong&g; were higher following a solid Q1 earnings release. The financial giant said that adjusted EPS came in at $0.62 versus analyst forecasts that called for $0.59. Q1 results saw modest growth in net interest income and moderate growth in average loans.
We were constructive on the firm&a;rsquo;s non-interest income growth and controlled expenses during the period. Bank of America also showed continued good credit quality and further loan loss reserve release. The bank&a;rsquo;s efficiency ratio improved to 60%, and capital ratios remain strong.
With many of the problems of the past decade seemingly in the rear-view mirror, Bank of America has numerous opportunities to capitalize, from its large deposit base and consumer lending franchise to its &a;ldquo;thundering herd&a;rdquo; of Merrill Lynch&a;rsquo;s financial advisors and wealth managers.
We like that credit quality continues to improve, and while expenses are being controlled, the company is investing in digital capabilities and enhancing the overall client experience. With the shares trading for just 11.4 times NTM estimated earnings, and the bottom line likely to benefit from higher interest rates, we think the stock is very attractive.
While shares currently yield just 1.6%, we expect the dividend rate to increase in the near term and for Bank of America to continue to buy back its common stock in the open market. Our target price for the stock has been lifted to $38.
Shares of regional bank &l;strong&g;Keycorp&l;/strong&g; ended the week up over 3% as interest rates started to inch up again and the company reported well-received Q1 financial results. Keycorp announced adjusted EPS of $0.38, which was in-line with consensus analyst estimates.
The bank benefited from a lower tax rate and growth in both non-interest income and net-interest income. Return on tangible common equity improved to 14.9% from 13.6% during the previous quarter.
We continue to like Keycorp and think that the Q1 results show directionally what we want to see, except for a bit higher expenses. We were pleased to hear management say it was committed to hitting full-year 2018 expense targets.
We also believe that the bank&a;rsquo;s efficiency can continue to improve as it benefits from the full integration of its recent acquisitions. Shares currently trade at 11.5 times NTM adjusted earnings expectations and carry a 2.1% dividend yield. Our target price has been bumped up to $27.
Shares of regional banking powerhouse &l;strong&g;BB&a;amp;T Corp&l;/strong&g; rose, supported by what looked to be a breakout quarterly report and rising interest rates. Core Q1 EPS came in at $0.97, versus consensus Street estimates of $0.92.
While forward-looking loan growth remains challenged, we liked that the company delivered lower-than-expected expenses and management believes overall total revenue is promising for full-year 2018.
We like that BB&a;amp;T continues to experience a strong adoption rate of its customizable digital banking platform and we remain fans of the company&a;rsquo;s relatively conservative loan underwriting and its efforts to diversify its revenue stream.
While shares are off to a good start (up more than 6%) in 2018, we see additional upside potential on the back of a solid economy, rising interest rates, cost controls and benefits from tax reform. BB&a;amp;T yields 2.5% and trades at 13 times NTM consensus earnings estimates. Our target price for BBT has been boosted to $64.
Shares of &l;strong&g;Fifth Third Bancorp&l;/strong&g; rallied more than 7% after reporting a solid Q1 earnings release. The Ohio-based bank posted adjusted earnings per share of $0.57, beating the average analyst estimate of $0.48 and the $0.37 of net income in the year-ago period.
Not shown in the adjusted numbers, the stock&a;rsquo;s Q1 financials benefited from a revaluation of its Vantiv stake after it merged with Worldpay. Adjusted return on tangible equity and return on assets both improved during the quarter, climbing to 13.4% and 1.23%, respectively. Additionally, net-interest margin was 16 basis points higher than Q4 2017.
We believe Fifth Third is a good regional banking name to own in a diversified equity portfolio. Shares are trading at less than 14 times forward earnings estimates and carry a dividend yield of 1.9% (though we expect the company to boost its payout in the next few quarters). Our target price has been boosted to $41.
Regional bank &l;strong&g;Old National Bancorp&l;/strong&g; saw its shares jump more than 4% after reporting Q1 financial results that saw EPS set a first quarter record and beat consensus analyst estimates by more than 16% ($0.34 versus $0.29). The company saw strength in commercial loans and cut non-interest expenses much more than investors were expecting.
We continue to like Old National Bancorp and its regional focus on Indiana, Wisconsin, Kentucky and Michigan. While non-interest income compression was a drag in Q1, the company is working to improve this area as it efforts to diversify its revenue stream. We view Old National as a quality bank whose management balances a conservative culture with aspirations for growth.
ONB remains well capitalized and its shares currently yield 3%, while the forward P/E ratio is a very reasonable 13.5. Our target price for Old National has been increased to $23.
&l;strong&g;Jason Clark, &l;span&g;&l;a href=&q;; target=&q;_blank&q;&g;The Prudent Speculator&l;/a&g;&l;/span&g;&l;/strong&g;
&l;strong&g;&a;nbsp;&l;/strong&g;&l;strong&g;Symantec&l;/strong&g;, the security, storage and systems solution company, cratered more than 33% May 11, even as the company reported fiscal Q4 financial results that exceeded expectations. Symantec posted adjusted EPS for the period of $0.46 on revenue of $1.23 billion, versus analyst expectations of $0.39 and $1.19 billion, respectively.
The problems arose when management offered fiscal 2019 full-year guidance that was below expectations and, more importantly, disclosed that the company was conducting an internal investigation that would delay the filing of its annual report and could potentially lead to a restatement of earnings.
Probably even worse was the lack of detail, with executives refusing to take questions of any kind on the company&a;rsquo;s earnings call, which left the analyst community scrambling to downgrade the stock.
Obviously, there isn&a;rsquo;t much we can say about the internal audit, as like everyone else, we are not privy to any information. No doubt, Symantec is under our close scrutiny, and we won&a;rsquo;t hesitate to part with the shares if our thesis changes, but at this point we remain long-term fans of the businesses in which the company operates.
We continue to like the additional emphasis on enterprise security and we suspect that cybercrime and cyberterrorism will, unfortunately, remain big problems that will constantly remind both enterprise customers and consumers why it&a;rsquo;s important to have Symantec&a;rsquo;s cyber protection.
Of course, given that we focus heavily on the financials associated with our companies, we are not yet willing to average down on our position until we gain a greater understanding of the accounting issues and until we can again trust the numbers.
&l;img class=&q;dam-image bloomberg wp-image-41730982 size-large&q; src=&q;×0.jpg?fit=scale&q; alt=&q;&q; data-height=&q;640&q; data-width=&q;960&q;&g; Bob Iger, chairman and CEO of The Walt Disney Co., and mascot Mickey Mouse ring the opening bell on the floor of the New York Stock Exchange Nov. 27, 2017. Iger is piloting the merger with Fox media assets. (Photo by Michael Nagle/Bloomberg).
Movies, entertainment and theme park company &l;strong&g;Walt Disney&l;/strong&g; posted terrific fiscal Q2 financial results; the firm earned $1.84 per share in the quarter, versus consensus estimates of $1.70, on sales of $14.55 billion (vs. $14.13 billion estimate).
It is important to note that while management did not discuss &l;strong&g;Comcast&a;rsquo;s&l;/strong&g; continued desire to acquire Fox and/or Sky on the call, &l;a href=&s;;&g;Bob Iger&l;/a&g; reiterated the importance of the assets and the firm&a;rsquo;s desire to buy both the Fox media assets and Sky.
Assuming Disney lands the Fox assets, we would see the acquisition strengthening an already best-in-class content portfolio. Also, Disney should enjoy increased production and marketing scale.
Further, we like that this combination affords Disney the chance to meaningfully enhance its global reach and should spur growth because of greater access to emerging market regions. We also like that the acquisition of Fox&a;rsquo;s sports assets should significantly enhance ESPN&a;rsquo;s sports leadership position in the U.S., while all offerings could be leveraged direct to the consumer via BAMtech Media.
That said, we also are very fond of the stand-alone Disney, especially as we see the movie biz continuing to do well. &l;em&g;Black Panther&l;/em&g; has grossed over $1.3 billion worldwide and &l;em&g;Avengers: Infinity War&l;/em&g; has already exceeded $1.6 billion in global box office after just opening in China.
And there are many more high potential films coming out this year, including &l;em&g;Solo, a Star Wars Story&l;/em&g; (which already has more ticket pre-sales than &l;em&g;Black Panther&l;/em&g; enjoyed) and &l;em&g;Incredibles 2&l;/em&g;. Shares are trading at a bit less than 14 times NTM earnings expectations and carry a 1.7% dividend yield. Our target price for the stock has been raised to $146.