One of the best parts about value investing is the mindset it gives you. As a value investor, you're looking to buy shares of strong companies at bargain prices. Thanks to that way of thinking, if a company's stock price drops while its business remains strong, it often becomes a sign for value investors to buy more.
Of course, for a company to truly be a value, a low price alone is not enough. The company must have decent enough long-term future prospects in order for investors to have a legitimate shot of truly benefiting from its price.
With that balancing act in mind, if you've got $5,000, here are three value stocks to consider buying and holding for years.
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1. A rock-solid insurance titan
Insurance and financial services giant Prudential Financial (NYSE: PRU) cares so much about its financial strength that it uses the Rock of Gibraltar as its corporate logo. A company that focused on being financially solid will likely never set the world on fire with its growth, and Wall Street recognizes that.
Yet for value-focused investors, the fact that Wall Street puts a premium on growth is exactly why Prudential Financial's shares appear to be available at a value price. Its stock can be purchased for around 7.4 times its anticipated earnings, while those earnings are expected to grow by slightly more than 10% annualized over the next five years.
Now that the Federal Reserve has paused its interest rate hiking campaign, Prudential Financial's rock-solid (get it?) balance sheet should start being able to add to its earnings capability. This is because it has over $300 billion in bonds on its balance sheet, all listed as "available for sale" or "trading" assets.
Rising interest rates cause the price of existing bonds to fall, which in turn drives an accounting loss, even if the bonds continue to pay as expected. Now that rates look like they've stabilized, those bond prices should also stop dropping as long as the issuers remain solvent. Since rates are also at a higher level than they were recently, it also means that any new bonds that Prudential Financial buys should drive more interest income.
2. A paper and packaging giant
In a world where single-use plastics are considered a major environmental threat, paper-based alternatives are often viewed as more sustainable options. This is because paper's easier recyclability, clear renewability, and better biodegradability make it less of a long-term risk.
On that front, International Paper (NYSE: IP) is leading the charge through sustainable forestry, more eco-friendly manufacturing operations, and increased recycling efforts. Those efforts are giving it a chance to drive growth based on consumer and business shifts in that direction, above and beyond the growth it would normally see just from an expanding economy.
International Paper recently traded hands just below 16 times its anticipated earnings. With those earnings expected to rise by a solid 19% annualized over the next five years, investors have a decent shot at seeing their investment pay off over time.
3. A retailer positioned to do well in tough times
Dollar General (NYSE: DG) has over 19,000 stores spread across 47 states. Its model of reaching underserved communities in rural and lower-income areas with low-cash-outlay items sets it up for success when times are tough.
After all, no matter what the economy is doing, people still need to eat and take care of the essentials of everyday life. Of course, buying in bulk at a superstore may provide a better value. Still, when you just have a few dollars to tide you over until payday and can't drive a long round trip to one of those superstores, Dollar General's convenience and low per-item outlay looks attractive.
That model gives Dollar General some serious staying power when times are tough. After all, in addition to their typical consumers, when times are tough, there are that many more people for whom the dollar channel price logic becomes a compelling way to shop.
Dollar General recently traded hands at around 15.4 times its anticipated earnings. Although its earnings aren't expected to grow rapidly over the next few years, its market position should give investors good reason to believe it will have long-term staying power.
While the exact future is unknowable, some outcomes are more likely than others
While Prudential Financial, International Paper, and Dollar General all provide different products and services to their consumers, they have two very important things in common. All three of them trade at what look like reasonable valuations given their prospects, and all three look like they provide good reason to believe they can stick around for a good long while.
That combination makes them worthy of consideration for value-focused investors who have $5,000 ready to put to work today. While those companies will not likely set the world on fire, an investment today might very well provide the sort of decent long-term returns that value investors generally seek out.
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Chuck Saletta has positions in Prudential Financial and has the following options: long January 2024 $110 calls on Prudential Financial, short January 2024 $115 calls on Prudential Financial, short January 2026 $82.50 puts on Prudential Financial, and short January 2026 $95 puts on Prudential Financial. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
