7 Deep Value Stocks for Income and High Total Returns
Investors have fewer deep value stocks to pick from after the latest rally.
Retail investors had enough of the bear market by late June when the S&P 500 bottomed at below 3700. From there, the index rose for several consecutive days. Each pullback ended quickly as more buyers bid stocks higher.
Fearful investors who waited for a stock market crash missed out. In the last two months, the summer rebound erased the technical bear stock market.
Income investors need not time the market as traders do. High total returns are a sum of dividend income yield and capital gains from stocks.
Deep value stocks that fell during the quarterly earnings season are especially attractive. They offer an even higher yield and lower risk. Some stocks are on sale because impatient investors do not want to wait for the business to turn around.
|MPW||Medical Properties Trust||$16.16|
|TROW||T. Rowe Price||$127.90|
Altria Group (MO)
Altria Group (NYSE:MO) posted Q2/2022 non-GAAP earnings per share of $1.26. Revenue fell by 4.1% year over year to $5.37 billion. The tobacco firm’s declining revenue does not hurt its dividend safety. Each share pays $3.60 in annual dividends.
Altria reaffirmed its 2022 full-year guidance. It expects adjusted diluted EPS in the range of $4.79 to $4.93. This is well above the annual dividend. In addition, the EPS is a growth of 4% to 7% from its $4.61 base in 2021.
Altria stocks are trading lower because the Food and Drug Administration wanted to take Juul products off the market. In the e-vapor category, consumers have few good quality choices.
Altria’s Chief Executive Officer, Billy Gifford, said that the company is monitoring the global market conditions for alternative products. It might consider merger and acquisition options, internal product development, and pipeline product expansion to strengthen Juul.
Tobacco demand is declining. Altria offsets the lower sales by increasing prices. For example, it can raise prices by 5% to 6%. This is below that of June’s consumer price inflation of 9.1%.
Devon Energy (DVN)
Devon Energy (NYSE:DVN) posted Q2 results on Aug.1. Its revenue grew by 132.6% year over year to $5.63 billion. Non-GAAP EPS was $2.59. It raised its full-year 2022 production forecast by 3%. It expects up to 610,000 Boe per day.
Devon’s growth rate exceeds that of high-flying technology firms at their peak. Yet the stock trades below the 52-week high. Markets are pricing the stock for its prospects. It believes energy prices will fall. Capital expenses will pressure margins.
The market is likely wrong in its forecast. Devon will apply its strong cash flow to buy back up to $2 billion worth of shares. Its capital expenditure is not a fixed value. It will alter its investment levels depending on its cash flow-through and margins.
In the last quarter, Devon Energy bought RimRock Oil & Gas leasehold interest and related assets in the Williston Basin. The $865 million limited the company’s stock buyback activity. Expect aggressive buybacks to support DVN stock for the rest of the year.
Intel (NASDAQ:INTC) posted disastrous results in the last quarter. INTC stock fell to levels not seen since 2016. On its conference call, CEO Pat Gelsinger said that the company believes it is at the bottom of the falling PC addressable market.
Intel is counting on the Client Computing Group (CCG) and the Datacenter and AI Group (DCAI) unit to recover through the rest of the year. First, the firm must work through excess inventory. This will set up a business recovery in the fourth quarter. Furthermore, Intel has a good set of products coming out in the second half of the year.
The company’s IDM 2.0 strategy (integrated device manufacturing) enables it to absorb much of the inflationary pressures. Competitors do not enjoy the same luxury. Since inflationary increases are permanent, Intel may pass the higher costs to customers.
The PC industry needs to work through a post-pandemic slowdown. Excess demand during the lockdown took away future sales. Intel will position its consumer and enterprise products to maximize margins. As margins recover, so too will Intel stock.
LyondellBasell Industries (LYB)
LyondellBasell Industries (NYSE:LYB) is a chemicals company. LYB stock failed to bounce back despite posting a non-GAAP EPS of $5.19. Revenue grew by 28.4% year over year to $14.84 billion.
CEO Peter Vanacker said its new propylene oxide capacity gives the firm meaningful contributions to earnings starting in 2023. Still, investors are worried about the volatility in polypropylene price spreads. For example, the spread increased from around 20 cents a pound at the start of the quarter to around 50 cents a pound in May 2022. Then it fell.
The industry’s production downtime for polypropylene has an effect on inventory levels. Fortunately, packaging demand is strong. While the company expects some softening in this space, spreads are above historic averages.
In Europe and China, demand is improving. China is reestablishing its relationship between naphtha and crude oil. Demand in China rose slightly in the second quarter. Investors may expect that by the end of the year and the start of 2023, China’s demand will return to normal levels.
Inflation in Europe led to moderating demand at the end of the second quarter. LyondellBasell also took a $65 million cut in revenue after extending its maintenance for its cracker in France. When inflation rates moderate, the company may increase volumes in Europe.
Medical Properties Trust (MPW)
Medical Properties Trust (NYSE:MPW) posted revenue of $400.2 million, up by 4.8% year over year. It maintained its per-share net income of $1.88 to $1.92.
REIT investors need to only care about Funds from operations (FFO). The value is an indicator of a stock’s distribution income safety. Medical Properties posted 46 cents per diluted share in normalized FFO.
Investors are worried that the company’s tenants are struggling. For example, Prospect Health sounded like it had a slower recovery. CEO Edwar Aldag said that business in this unit’s West Coast facilities remains strong. Those facilities will continue to generate good coverage.
Medical Properties has a model of success that depends on the attractiveness of its facilities. For example, it acquired Five General Acute hospitals in South Florida in June 2021. The Steward facility from Utah alone will have an EBITDAR run rate of around $125 million.
Medical Properties could elect to sell the unit or seek a joint venture. This increases its diversification.
Suncor Energy (SU)
Suncor Energy (NYSE:SU) posted strong upstream production, net synthetic crude production growth and increased refinery crude in the second quarter.
The firm earned $2.71 in EPS (non-GAAP). Upstream production was 720,200 barrel of oil equivalent (BOE) per day in the quarter. Net synthetic crude oil production increased to 483,000 barrels per day (bbls/d), up from 437,200 bbls/d last year. Refinery crude throughput increased to 389,300 bbls/d.
Suncor benefited from a strong performance at Syncrude. Investors should expect continued improvements in the quarter ahead. CEO Greg Pardy said that its Fort Hills open-pit truck and shovel mine is in-line with plans. It completed its planned maintenance last year. As it comes out of that maintenance, Fort Hills will contribute to results.
Capital expenditure guidance is slightly higher. Suncor is restarting the West White Rose Project. It increased spending related to project turnarounds. In addition, it has maintenance activities to complete. This increased staff safety and reliability. It strengthens the return on assets.
Rowe Price (TROW)
T. Rowe Price (NASDAQ:TROW) is an asset management firm. In the second quarter, revenue plunged by 21.8% year over year to $1.51 billion. Non-GAAP EPS was $1.79.
Investors expected TROW’s poor results. Unitholders withdrew assets as fears mounted. The bear market led to increasing capital losses by June. Unitholders potentially had no choice in withdrawing assets. They may have needed to raise cash to cover higher costs related to inflation.
The stock market’s strong rebound since will persuade retail investors to put money back into markets. This would reverse the net client outflow from Q2. Customers of T. Rowe Price pushed the assets under management from $1.55 trillion at the end of the first quarter to $1.31 trillion.
TROW cut spending levels to offset its top-line decline. CEO Rob Sharps said it would take steps to cut its pace of hiring. Its expense growth deceleration will restore the firm’s profitability levels.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.