Even as the S&P 500 reaches new highs, some investors are fleeing to value stocks as their best option for long-term growth. Growing Concerns about the investment concentration in growth indices create cause for concern, as in the S&P 500’s increased reliance on high-flying tech stocks like Nvidia (NASDAQ:NVDA) to keep the party going. This reliance is a double-edged sword; a few missteps by these companies could crush your portfolio.
Today’s value stocks offer two key advantages: the best ones largely adapted to economic conditions, with relative undervaluation creating massive upside as winds shift, and their inherent value characteristics help preserve capital. This often translates to solid income and dividend opportunities.
These value stocks combine these strengths, making them one of the best strategies to diversify risk away from the dominant stocks that largely control your portfolio’s performance.
Polaris (PII)
Off-road and adventure enthusiasts rejoice — Polaris (NYSE:PII) is one of those value stocks that may have suffered in recent months amid higher rates and reduced economic performance but is set to surge forces realign to improve its market standing.
Polaris makes a range of off-road vehicles, including ATVs, side-by-sides, and even snowmobiles. Sales surged mid-pandemic as cheap debt made financing easy and abundant free time amid shutdowns forced outdoor recreation. That all changed, of course, and income dipped drastically between 2022 and 2023’s end as rate hikes took full effect.
But Polaris is set for an upsurge that will delineate the company from other value stocks, as renewed consumer sentiment and softening inflation increase the likelihood of rate cuts. Already, industry experts expect a solid 8% combined annual growth rate for the wider off-road recreation segment through 2032. Likewise, Polaris is undeniably dominant in the category, enjoying a brand position well above competitors that ultimately sets it up for a solid resurgence in the coming years.
Titan Machinery (TITN)
Small-cap agriculture and construction equipment stock Titan Machinery (NASDAQ:TITN) may not have the widespread recognition of industry giants like Deere & Co (NYSE:DE), but its strong fundamentals are hard to ignore. Titan Machinery’s recent first-quarter report blew past analyst expectations, posting a 10% year-over-year sales increase, although net income dropped, largely due to challenges like rising supply chain and fuel costs. But, as with value stocks like Polaris, improved economic outlooks bode well for a rapid reversal in Titan’s fortune.
To that end, Titan Machinery is undeniably undervalued, considering its potential upside, trading at just 0.12x sales, 3.66x earnings, and 0.52x book value. Undervaluation this dramatic is particularly stark considering the company’s 79% annualized income growth over the past three years, even accounting for recent declines. For the remainder of the year, Titan’s conservative outlook includes single-digit gain projections across all operational segments and a slight dip in year-end earnings. However, if Titan surpasses these modest forecasts, the stock could rapidly reverse from its recent downward trajectory. Either way, Titan’s low cost among value stocks makes it an undeniably solid play at these prices.
Steelcase (SCS)
High-end office furniture manufacturer Steelcase (NYSE:SCS) will benefit from the same economic tailwinds propelling the other value stocks on the list but also has the secondary boost of capturing wider work-from-home trends that create new market opportunities.
After pandemic-related setbacks, Steelcase swiftly regained financial stability. The company’s latest quarterly earnings report revealed a net income of $10.9 million, nearly 10x year-over-year, further proving that economic conditions are improving in Steelcase’s favor. Additionally, steady sales of approximately $3.2 billion over the past two years highlight Steelcase’s ability to maintain strong margins without sacrificing quality.
To capitalize on the ongoing remote work shift, Steelcase targets 4-6% annual sales growth and aims for a 5% free cash flow margin as a percentage of revenue over the next five years. The company has also significantly reduced its debt, enhancing liquidity and lowering interest costs in the current high-interest-rate environment. These strategic initiatives position Steelcase as a top player among quality value stocks in today’s market.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.
