“It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.” – Warren Buffett
Value investing is a timeless investment strategy that involves searching for undervalued stocks trading below their intrinsic value. This approach has been championed by legendary investors like Warren Buffett and Benjamin Graham, and has proven to be a successful long-term strategy. You can read more about value investing and the time-test approach for 45+ years here.
In this article, we will explore some of the top stocks to buy for value investors in today’s market based on weight (heaviest). All listed holdings are stocks currently in The Prudent Speculator Portfolio as of September 30, 2023. For each stock, we offer our most recent assessment, which our members can find in the Stock Picks section of the Member Portal or in each monthly newsletter.
1. Apple (AAPL) – 3.1%
Shares of Apple were given a haircut after the consumer electronics darling reported supply chain challenges, despite turning in fiscal Q2 results that exceeded analyst expectations. Apple earned $1.52 per share (vs. $1.42 est.) while revenue was $97.3 billion (vs. $94.0 billion est.). CFO Luca Maestri explained, “We believe our year-over-year revenue performance during the June quarter will be impacted by a number of factors. Supply constraints caused by COVID-related disruptions and industry-wide silicon shortages are impacting our ability to meet customer demand for our products. We expect these constraints to be in the range of $4 billion to $8 billion, which is substantially larger than what we experienced during the March quarter.” Apple has long been known for its tight grip on supply chains, so the admission of challenges on that front was a big deal. Despite Apple’s favored status with investors, the company’s shares have actually dropped after every quarterly report (but one) since Q4 2020. Not a great set of one-day records, but the shares have gained ground over that full time period. Continuing to like the cash rich balance sheet and the entrenched Apple ecosystem, we think the pullback offers a nice entry point.
We first recommended Apple on October 06, 2000 at $0.34 per share in TPS edition 408. Its price is $172.40 as of October 3rd, 2023.
2. Microsoft (MSFT) – 2.5%
Microsoft is a global leader in the development and sale of computer, mobile device and cloud computing software. The company benefitted hugely from the Pandemic, as businesses around the world scrambled to restructure their IT infrastructure for a work-from-home workforce. MSFT shares have plunged more than 30% this year as jitters about the sustainability of the IT boom and global macroeconomic pressures (MSFT earns half its revenue abroad) have taken their toll. Fiscal Q1 2023 was solid for Microsoft, as evidenced by the top- and bottom-line beats, but the company’s outlook disappointed. CFO Amy Hood warned of negative impacts from a strong dollar and weaker consumer PC demand, even as the Cloud pipeline remains robust. Given the 30%+ annualized return for the decade ended last December, it’s not hard to believe that shares have fallen this year. We definitely think MSFT is a stock that is on sale, especially as we like the terrific balance sheet and don’t mind the modest 1.2% yield.
We first recommended Microsoft on February 28, 2005 at $17.68 per share in TPS edition 461. Its price is $313.39 as of October 3rd, 2023.
3. Alphabet (GOOG) – 2.0%
Alphabet is a holding company that through its subsidiaries provides web-based search, advertisements, software, hardware and enterprise solutions. Alphabet controls many subsidiaries, including major internet sites Google and YouTube and mobile device software Android. Shares struggled in 2022, as worries of an impending recession and quickly rising interest rates brought ad spending to a (relative) screeching halt. Of course, the world didn’t end, and a recession seems further away now than at any point in the past year, but the damage was done nonetheless. We expect earnings to rebound as businesses grow their budgets again, while the $114 billion of cash on GOOG’s balance sheet seems helpful in weathering any economic upset that does eventually arrive. Longterm investors looking for an excellent company with a bright future should consider GOOG as a cornerstone in any diversified portfolio, especially considering that the valuation is now very attractive (the forward P/E is in the 16 range, but it drops to 11 using the 2025 estimate).
Alphabet was first recommended on April 30, 2018 in TPS edition 619.
4. FedEx (FDX) – 2.0%
Memphis-based FedEx is the world’s largest cargo airline and offers door-to-door package delivery services for consumers and businesses in more than 220 countries and territories. Even though package volumes have been enormous and FDX has been aggressive in its cost reduction programs, including the renewal of its aircraft and truck fleets (at low interest rates no less!), shares have struggled to gain momentum this year. The TNT acquisition in Europe has yet to add meaningfully to net income and the company’s Network 2.0 plan, unveiled in June, is expected to reduce the number of delivery stations by 100. The $2 billion project will extend through 2026, but management expects $2+ billion in annual savings once complete. We like how FedEx has evolved over the last two decades and that it remains a leader in its industry. Shares change hands at just 9 times NTM earnings.
FedEx was first recommended on January 31, 2016 in TPS edition 592.
5. Broadcom (AVGO) – 1.9%
Broadcom designs and develops digital and analog semiconductors for a broad range of data center, networking, software and industrial markets. The company has been an acquisition machine, rounding up Brocade, CA Technologies, a division of Symantec and soon-to-close VMware. It’s been a bumpy ride for AVGO this year, as uncertainty and supply chain issues in the semiconductor space have caused consternation for investors, but it would have been hard to tell that there were challenges by looking at fiscal Q3 EPS of $9.73 (vs. $9.57 est.) and revenue of $8.47 billion (vs. $8.41 billion est.). The VMware acquisition should fit in nicely with Broadcom’s fastgrowing Software segment, and CEO Hock Tan’s track record leaves us more comfortable with the massive $61 billion acquisition than we otherwise might be. Software is a newer frontier for Broadcom and its customer base, so AVGO must work hard to keep the customers happy with the post-merger setup, but there should be significant upside for success. We also like the proven ability to de-lever following acquisitions. Shares trade for just 12 times estimated earnings and yield 3.3%.
Broadcom was first recommended on October 31, 2019 in TPS edition 637.
6. HF Sinclair (DINO) – 1.8%
HF Sinclair is a refinery operator with facilities located in Kansas, Oklahoma, New Mexico, Utah, Washington and Wyoming. With the purchase of Sinclair closing last year, the firm gained a marketing business with more than 1,300 independent wholesale Sinclair-branded gas-station and convenience-store sites in 30 states and expanded its refining, renewables and lubricants operations. Tight fossil fuel supply conditions in the past year pushed profits to record levels, and the stock returned over 60% in 2022. The shares have pulled back 20% since November as concerns of a slowing economy have weighed on energy prices. Profits in the refining space can be volatile from quarter to quarter as evidenced by the Q4 EPS of $2.92 coming in well below consensus ($3.69 est.), but we think margins will gain some support as turnarounds are scheduled for refinery operations this year industry-wide. Longer term, fossil fuels should remain a substantial part of global energy usage. The firm has $662 million remaining on its share repurchase authorization and a recent 12.5% increase to the dividend indicates management confidence in DINO’s earnings power. Shares trade for a single-digit multiple of EPS estimates and yield 3.6%.
HF Sinclair was first recommended on August 31, 2013 in TPS edition 563.
7. Meta Platforms (META) – 1.8%
Meta (formerly known as Facebook) is the largest social network in the world with an estimated base of monthly active users of 3 billion, around 58% of the global population with access to the internet. Shares have lost two-thirds of their value this year, due to moderating ecommerce growth, competition from TikTok and privacy changes within Apple’s iOS. Those are very real challenges, especially as a cooling economy also has negatively impacted advertising and marketing revenue. Moreover, Mark Zuckerberg’s decision to spend massively on his metaverse vision have many worried about the ROI, but the CEO alleviated some concern recently with a focus on cost-cutting, including the layoff of 13% of META’s workforce. However, we think the share price plunge has baked in far too much pessimism. After all, META now trades for 11 times a drastically reduced 2023 EPS estimate, while the balance sheet is pristine with $41 billion in cash and management has been an active buyer of the stock. Even as profit margins will likely remain under pressure in the next year or two, given the ramp of the firm’s Reels offering and AI investments flowing through the income statement, we think the core business offers a compelling proposition for customers and investors alike, while EPS growth should resume in 2024.
Meta Platforms was first recommended on February 28, 2022 in TPS edition 665.
8. Exxon Mobil (XOM) – 1.7%
One of the world’s largest integrated oil and gas companies, Exxon Mobil’s countercyclical expansion strategy leading into the pandemic continues to pay off. Last year was a banner one for the Energy titan and even though oil prices are some 40% below their 2022 peak, OPEC+ appears resolute to provide a backstop (Saudi Arabia just said it would extend it voluntary cut of 1.0 million barrels per day (bpd) through August and Russia will cut exports by 500,000 bpd next month), while industry-wide underinvestment in exploration and production points to potential global supply issues down the road. Exxon continues to hunt for projects off the coast of Guyana and is one of few to expand conventional refinery production with its Beaumont project integrating with Permian assets and providing 250,000 bpd of additional capacity. We appreciate the approach to capital deployment management is taking to balance reducing debt, investing in new projects and returning capital to shareholders, while peers seem mostly captivated by the latter. XOM trades for 12 times NTM EPS and yields 3.4%.
Exxon Mobil was first recommended on October 31, 2005 in TPS edition 469.
9. Comcast (CMCSA) – 1.6%
Comcast is a global media and technology company with two primary businesses. Comcast Cable is one of the nation’s largest video, high-speed internet and phone providers to residential customers under the XFINITY brand and also provides these services to businesses. NBCUniversal operates news, entertainment and sports cable networks, the NBC and Telemundo broadcast networks, television production operations, television station groups, Universal Pictures and Universal Parks & Resorts. Comcast shares have struggled over the past year, and the company’s relationship with Disney over the future of Hulu hasn’t helped offer shareholders a clear path to earnings growth in 2023. Disney could buy CMCSA’s 33% stake in Hulu for approximately $9 billion, an outcome which at one point seemed like a clear winner. However, mounting challenges in streaming profitability and the rehire of CEO Bob Iger mean Disney could opt to spin off Hulu, creating challenges for Hulu due to its bundles with Disney+ and ESPN+. CMCSA is all in on streaming, despite it being a costly gambit. Still, we like that CMCSA trades at a reasonable 10 times earnings and yields 3.1%.
Comcast was first recommended on July 31, 2009 in TPS edition 514.
10. NetApp (NTAP) – 1.6%
NetApp is the “data authority for the hybrid cloud” as its products work as a neutral platform between any number of cloud vendors and on-premise environments. The company is #1 (according to Gartner) in general-purpose disk arrays and solid-state arrays, and calls Cisco, Microsoft and AWS among its partners. NTAP reported stronger-than-expected EPS of $1.48 (vs. $1.33 est.) in fiscal Q2 2023, yet shares fell 7% after the full-year EPS forecast was lowered. NetApp now expects revenue growth between 2% and 4% with EPS between $5.30 and $5.50, $0.10 lower than the previous range. While NTAP isn’t alone in the observation, management comments that deals are getting smaller and IT departments are more careful to review their budgets didn’t send a sufficiently positive message about near-term prospects. Of course, the long term is our focus and we think NTAP’s thesis remains intact, even if near-term headwinds kick up. Analysts expect EPS of $5.43 this year with growth above $6.50 by fiscal 2025, while revenue growth estimates are in the 4% to 9% range for the next three years. We like the solid balance sheet, stout 3.0% yield and very reasonable valuation.
NetApp was first recommended on May 31, 2019 in TPS edition 632.
Value investing remains a viable strategy for investors seeking long-term capital appreciation and stability. While the stocks mentioned here are considered suitable for value investors, it’s crucial to conduct thorough research and consider your investment goals and risk tolerance before making any investment decisions. As a reminder, the full listing of our Open and Closed stock recommendations since 1977 can be found in the footer of our website, theprudentspeculator.com.
Remember that the key to successful value investing is patience, diversification and selection—a strategy we promote, and one that has proven very successful for those that have joined The Prudent Speculator investing community.