Value investing, a strategy favored by renowned investors like Warren Buffett, focuses on identifying undervalued stocks trading below their intrinsic worth. This approach becomes particularly attractive in overheated markets, where finding fairly priced assets can be challenging.
The current U.S. stock market presents a concerning picture for many investors. The Shiller P/E Ratio for the S&P 500 stands at 35.82, more than double its historical average of 17.14. This metric, which compares stock prices to inflation-adjusted earnings over the past decade, suggests that the broader market may be significantly overvalued at current levels.
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Armed with this background, these three value stocks screen as top buys for long-term investors right now. Read on to find out more about these deeply undervalued stocks.
1. Viatris
Viatris(NASDAQ: VTRS) is a global healthcare company formed through the merger of Mylan and Upjohn, a former division of Pfizer. The company specializes in generic and branded medicines.
Viatris stock trades at a forward price-to-earnings (P/E) ratio of just 4.33, well below the industry average of 17. The company has struggled since its inception due to pricing headwinds surrounding small molecule generic drugs.
In addition to its rock-bottom valuation, Viatris offers shareholders a hefty 4.12% dividend yield. The downside is Wall Street is projecting a 1.5% revenue decline for the drugmaker in 2025 because of continued price erosion in the generic-drug market.
The investment thesis for Viatris boils down to the company's ability to optimize its product portfolio and create value through its innovative drug pipeline. Viatris definitely qualifies as a turnaround story, but it has the pieces in place to deliver strong returns over the next decade.
2. Ford Motor Company
Ford Motor Company(NYSE: F) is a household name in the automotive industry that is currently undergoing a significant transformation toward electric vehicles (EVs).
Ford stock trades at a forward P/E ratio of 5.39, and its shares pay a stellar 5.71% yield. That said, the auto giant isn't a bastion of growth. Wall Street expects modest top-line growth of 1.1% in 2025, reflecting the challenging transition to EVs, along with a handful of recent manufacturing issues.
The bottom line is Ford is a turnaround story at this point. However, the automaker's aggressive transition into EVs and pivot toward its most profitable segments should bear fruit over the next 10 to 20 years. So if you're looking for deep value in this overheated market, Ford should be on your radar.
3. Ally Financial
Ally Financial(NYSE: ALLY) is a digital financial services company offering a range of products including auto financing, online banking, and investment services.
Ally stock trades at a forward P/E of 13.4, which is below average for the financial sector. Moreover, its dividend yield stands at a healthy 2.88%. Ally is also projected to post strong top-line growth of 12.7% in 2025, although the exact catalyst behind this double-digit revenue forecast isn't altogether clear.
The investment case for Ally rests on its digital-first approach, which allows for lower overhead costs compared to traditional banks. Its strong position in auto lending and growing deposit base provide a solid foundation for future growth.
However, an economic downturn could impact loan performance, particularly in its auto segment. As such, this financial stock definitely isn't a buy for short-term traders looking to turn a quick profit. But it should appeal to value investors willing to hold over the course of multiple business cycles.
Key takeaways
These three value stocks aren't likely to supercharge your portfolio overnight. Each company currently faces significant challenges. However, Viatris, Ford, and Ally all have strong underlying businesses that, while requiring some adjustments, should prove resilient over the long term. For investors seeking alternatives to the handful of names currently powering the S&P 500, these three stocks may warrant serious consideration.
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Ally is an advertising partner of The Ascent, a Motley Fool company. George Budwell has positions in Pfizer. The Motley Fool has positions in and recommends Pfizer. The Motley Fool recommends Viatris. The Motley Fool has a disclosure policy.
