2 high value stocks to buy in 2021
the S&P 500 Index grew 16.3% in 2020, despite the coronavirus pandemic, a recession and many economic uncertainties throughout the year. The index is now trading near the top of its historical valuation range, with stocks in the index averaging a price / earnings (P / E) multiple of 38.
It is impossible to predict how the market will perform in 2021. But repeated good performance is not necessarily the norm. Investors who are worried about 2021 might consider betting on value stocks with fewer expectations built into their prices (good and bad) to mitigate risk in what is currently an expensive market.
Let’s explore the reasons why value stocks like Johnson & johnson (JNJ 1.09% ) and Target (TGT 0.47% ) might make some good choices for the new year.
1. Johnson & Johnson
With a P / E ratio of 19.5, Johnson & Johnson is trading at the high end of its historical range. But the healthcare and consumer goods giant remains an irresistible stock of value due to its steady growth and consistent profits. Johnson & johnson COVID-19 vaccine candidate, JNJ-78436735, could help the company succeed in 2021 due to its logistical advantages over coronavirus vaccines fromdevelopped by Pfizer and Modern.
Analysts Morgan stanley and Swiss credit Expect the COVID-19 vaccine market to be over $ 10 billion a year – that assumes the disease becomes rampant and people will need to be injected every year, as with the flu. And while Johnson & Johnson has agreed to distribute its vaccine candidate on a “not-for-profit” basis during the pandemic, the vaccine could capture significant market share once the crisis is under control because it is easier to store and administer. .
Unlike other approved vaccines, which require two doses and an elaborate cold storage chain, JNJ-78436735 requires only a single dose and is stable for up to three months at temperatures of 36 ° F to 46 ° F. The Trump administration believes Johnson & Johnson may have enough data to submit an emergency use request to the FDA by the end of January, and that distribution could follow shortly thereafter.
The vaccine could be a welcome boost to Johnson & Johnson’s relatively slow growing revenue. Third-quarter sales rose 1.7% to $ 21.1 billion (boosted by strong pharmaceutical sales), while adjusted earnings per share rose 3.8% to $ 2.20 billion. dollars. The stock has a dividend yield of 2.57%, and the company has increased its payouts each year for 58 consecutive years, making it a King of dividends.
Discount retailers are ideal for value investors. These companies often have modest valuations and hold up well in times of economic downturn due to their focus on basic consumption some products. Target saw increased demand in 2020 as shoppers stockpiled essentials during the coronavirus pandemic. And the company’s fast-growing e-commerce business could contribute to the growth in 2021.
The coronavirus pandemic has changed the way people shop, with more people are turning to e-commerce solutions for essential household items like groceries. Target can help meet this growing demand through its network of 1,897 stores in the United States, giving it a competitive edge in same-day fulfillment over its e-commerce competitors like Amazon, which have a smaller physical footprint.
Sales increased 21% year-on-year to $ 22.3 billion in the third quarter, with digital sales surging 155% to account for around 16% of sales during the period. According to CEO Brian Cornell, Target’s fastest growth has come from its same-day services, including in-store pickup and contactless drive-up.
Target’s share price climbed about 43% in 2020 to end the year at $ 177 per share. Despite the massive rally, stocks are showing a P / E ratio of 23, which is significantly lower than the market average of 38 and represents good value given the company’s new digital growth engine. The retailer also has a solid dividend (currently making 1.53%) which has been steadily increased for 48 consecutive years, making Target a Dividend Aristocrat.
More for your money
With average stock valuations reaching breathtaking levels, investors can sleep easier by betting on stocks that offer more bang for their buck. Johnson & Johnson and Target are currently trading at the top of their historic P / E ratios, but they remain good value for investors due to their new growth drivers (coronavirus vaccines and e-commerce).
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.