Top 5 Value Stocks To Watch For 2019

A recent article by Pomona College finance professor Gary Smith has me thinking about stocks to buy over $200.

Smith’s opinion piece appeared on MarketWatch July 2; using three valuation models to make his case, he argued why Apple (NASDAQ:AAPL) is still a buy at $200.

Admittedly, AAPL is not quite there yet, trading around $187 as a write this, but close enough.

A well-written and mathematically sound valuation of Apple stock, Smith concluded that if you buy at $200 and hold for ten years time, you’ll be happy you did.

I’m not suggesting for a minute that buying stocks trading over $200 are the key to your financial future, but they are often this high because of strong economic underpinnings.

Take Amazon (NASDAQ:AMZN), for example.

It crossed $200 in March 2012. If you’d bought 100 shares back then, today you’d have an annualized total return of 41% in the six-and-a-quarter years since and, more importantly, a profit of $151,257.

Out of all of the S&P 500 stocks, 52 trade at $200 or more. Here are my seven stocks — one from seven different sectors —  to buy over $200.

Top 5 Value Stocks To Watch For 2019: Sherwin-Williams Company (SHW)

Sherwin-Williams (NYSE:SHW) is my pick from the basic materials sector. Down 0.40% year-to-date, it has some work to do if it wants to finish 2018 up double digits, something it has done five times in the past decade.

The global paint business was recently in the news, but not in a good way. Three people, including an analyst with S&P Global were charged with insider trading related to its 2016 purchase of Valspar. It seems the analyst allegedly tipped off two friends of the impending announcement netting them $300,000 on Valspar stock.

While that’s not Sherwin-Williams’ fault, it’s never good to have your company associated with this kind of profiteering.

The company’s Q1 2018 results paint a picture of a very strong global paint and coatings business that saw revenues grow 6.9% during the quarter to $4.0 billion generating $2.89-per-share in profits with expectations in fiscal 2018 of a minimum $16.05-per-share in earnings.

In the case of Sherwin-Williams combining with Valspar, one plus one equals three.

Top 5 Value Stocks To Watch For 2019: Diageo plc(DEO)

Do you like booze? Enjoy knocking back a few from time to time? Then hop on board Diageo (NYSE:DEO). We know for a fact there will always be some baseline demand for alcohol. No matter how healthy people claim they want to be, they will always give in to alcohol.

You know many of Diageo’s brands, including Johnnie Walker, Crown Royal, J&B, Buchanan’s and Windsor whiskies, Smirnoff, Cîroc and Ketel One vodkas, Captain Morgan, Baileys, Don Julio, Tanqueray and Guinness.

Why is alcohol a smart investment? Because it is a social product. When people get together, if one person buys, others tend to buy also. Marketing for alcohol centers around creating an experience, and creating and perpetuating social circles. In general, it is a good play because human social behavior is often centered around the consumption of alcohol.

DEO stock is being pushed higher thanks to increased efforts in flavored alcohols. The company is consistent and reliable, and pumps out more than $3 billion annually in free cash flow, returning about half of that to shareholders in the form of its 2.4% yield.

Top 5 Value Stocks To Watch For 2019: United Natural Foods, Inc.(UNFI)

United Natural Foods sells organic, natural and specialty foods to groceries in the U.S. Of course, the company, which sells a significant amount of products to Whole Foods, will benefit if that chain becomes much more popular.

Like Sprouts, United Natural Foods should be boosted by food inflation and by increased demand for healthier food. It’s looking to further exploit the latter trend by increasing its exposure to fresh food and growing its e-commerce business, the company said on its fiscal third quarter results conference call on June 6.

Importantly, United Natural Foods also reported that it’s outpacing the growth of the organic foods sector. Indeed, the company’s net sales jumped 12% year-over-year in the third quarter, while its net operating income soared 42% versus the same period a year earlier.

Despite the impressive growth, United Natural Foods stock has an anemic valuation. United Natural Foods stock is trading at a forward price-to-earnings ratio of just 12, and its price-to-sales ratio is a tiny 0.22.

After the company reported its third-quarter results, multiple analysts complained about its margins. Last quarter, its gross margin came in at 15.4%.

I believe that, going forward, a combination of higher food inflation, supply chain improvements, and greater scale will meaningfully boost United Natural’s margins. Meanwhile, as Wall Street becomes much more enthusiastic about the organic food category, the multiples of UNFI stock should rise significantly.

Top 5 Value Stocks To Watch For 2019: Boeing Company (BA)

Boeing (NYSE:BA) is my pick from the Industrial Goods sector. Up 15% YTD compared to 4% for its aerospace and defense peers, it has managed to deliver an annualized total return of 17% over the past 15 years, 210 basis points greater than its peers.

On July 2, the Brazilian news media reported that Boeing and Embraer (NYSE:ERJ) would submit the contracts bringing Embraer’s commercial aviation division together with Boeing’s commercial aviation business to the Brazilian government for its blessing.

Upon approval and completion, Boeing would control the operation, one that should compete more effectively against the Airbus (OTCMKTS:EADSY), Bombardier (OTCMKTS:BDRBF) tie-up with the C-Series jet.

The year is going well for Boeing despite the China tariff headwinds threatening its most significant growth market — Boeing will sell $1 trillion of its planes to China over the next 20 years — and bringing Embraer under its fold puts a cherry on top of the sundae.

There might be some turbulence for Boeing stock over the next 12 months; I would take any retreat of its stock price as an opportunity to buy at a better price.

Boeing’s currently operating at maximum efficiency and should be able to keep it up despite the storm clouds in China.

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