Value stocks are in a good place at the moment, and I’m not merely basing my argument on the fact that the Vanguard Value Index Fund (NYSEARCA:VTV) has surged by more than 5% in the past six months. In fact, I believe forward-looking variables are well-aligned for the best value stocks to hit the ground running next year.
Global yield curves suggest interest rates will start tapering next year. The initial taper may be due to economic softening, providing little margin for growth stocks to prosper. However, high-quality value stocks characterized by mature business models with sustainable cash flows could skyrocket due to their tendency to outperform the market in an inverted yield curve environment.
Given my outlook, I decided to delve into the value stock space and identify three best-in-class value stocks to buy. Let’s discuss each.
Intesa Sanpaolo (ISNPY)
Intesa Sanpaolo (OTCMKTS:ISNPY) is a renowned Italian bank. The bank primarily facilitates commercial loans via its Banca dei Territori business. Moreover, Intesa Sanpaolo hosts solid execution in retail banking, allowing it to produce stellar results throughout the economic cycle.
In my view, the Italian bank could benefit from broad-based interest rate declines in the European Union next year. Lower funding rates paired with countercyclical credit spreads may lead to significant profits for commercial banks such as Intesa.
Furthermore, Intesa Sanpaolo’s latest stress test results communicate efficiency, subsequently instilling investor confidence. The company released its capital requirements report last month, conveying a 9.32% common equity tier-one ratio. That placed it in the upper echelon of the bank balance sheet spectrum.
ISNPY stock has a price-to-book ratio of 0.75x, suggesting it is significantly undervalued. In addition, ISNPY’s forward dividend yield of 8.88% provides income-based returns and adds a floor to the asset.
It’s all systems go for ISNPY stock!
SkyWest (SKYW)
SkyWest (NASDAQ:SKYW) stock is experiencing tremendous momentum from industry-based variables and structural advantages. Its price surged 2.04x year-over-year, and its salient variables imply that SKYW has more gains in store.
Airline bookings surged by 10.7% in the three weeks leading up to December 3rd, and the trend could continue throughout the festive season. In addition, SkyWest recently beat its third-quarter earnings target, leading to a 10% stock increase on the day, implying the market is excited about SkyWest’s prospects.
Dialing in on SkyWest’s third-quarter results shows topline resilience. The company delivered quarterly revenue of $766 million, accompanied by a $57 million deferral. Although the company’s revenue settled 3% lower than the same time last year, airline bookings are on the up, and a better consumer environment could surface next year, allowing for increased revenue. Moreover, SkyWest’s input costs are set to ease amid cooling inflation and a less demanding labor force.
I firmly believe SKYW stock is undervalued. Its price-to-book ratio of 0.95x is lucrative. Additionally, SkyWest repurchased 1.2 million shares for $50 million during its third quarter, lowering its stock’s cost basis. Strong buy here!
Newmont Corporation (NEM)
Newmont Corporation (NYSE:NEM) is front and center when it comes to systematic risk exposure, meaning its stock is interlinked with gold prices. Gold futures and spot prices are well placed going into the new year as a U.S. interest rate pivot will likely see the U.S. dollar weaken and gold moving in the other direction. That concurrent movement will attach enhanced valuation multiples to Newmont’s inventory value.
Furthermore, telling operational catalysts have emerged. For example, Newmont recently acquired Newcrest Mining to bolster its exposure to high-quality Australian reserves. In addition, Newmont is exploring a reshuffle of its existing portfolio via the disposition of the Cripple Creek & Victor mine. The Cripple Creek & Victor mine is a smaller asset that no longer aligns with Newmont’s corporate strategy. A potential sale will free up additional liquidity, allowing Newmont to scale its primary assets or venture into additional acquisitions.
Newmont recently missed its third-quarter revenue and earnings-per-share targets by $329.31 million and 4 cents, respectively. However, the stock has surged by about 10% ever since, suggesting investors believe the Newcrest deal and higher gold prices will outweigh recent results.
Lastly, key indicators suggest NEM stock is undervalued. Newmont’s forward price-to-book value of 1.41x is about 24% below its 5-year average. Moreover, NEM’s forward dividend yield of 3.91% is compelling to say the least.
On the date of publication, Steve Booyens did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
