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Value Stocks For The Second Half of 2014


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Value Stocks For The Second Half of 2014

Value StocksEven after a five year bull market rally and stock market indexes reaching all time highs, there are still value stocks that can be purchased for the second half of 2014.  The key to finding value stocks in the current fully valued stock market is to understand what makes a stock a value stock.  It is not, as many investors believe, the price of the stocks, but rather the future earnings growth rate that makes certain stocks values stocks, even as the broader stock market indexes trade in uncharted territory.

Here are some value stocks that can be purchased for the second half of 2014 to consider:

  • Citigroup Inc. (NYSE: C) is off to a bad start in 2014, with a loss of more than ten percent since the year began.  What makes Citigroup a value play for the second half of 2014 is the fact that the stock trades at approximately 11 times the past twelve month’s earnings.  Compare this to the average Standard and Poors 500 (S&P 500) stock that trades at 19 times the past twelve month’s earnings, and one can understand that Citigroup is well undervalued compared to the broader stock market.  With Citigroup’s exposure to the strengthening United States economy during 2014, it is reasonable to conclude that the bank will benefit from the uptick in economic activity and the stock price will also benefit.  Currently trading around $47 per share, Thomson/First Call has a consensus price target of $58.21.

Capital One Financial

  • Capital One Financial Corp. (NYSE: COF) has risen over ten percent during the first half of 2014.  With the stock trading between 11 and 12 times the past twelve month’s earnings, there are reasons to believe that Capital One Financial Corp is still a value stock and can move even higher as 2014 progresses.  Although the stock is trading near the $84.67 Thomson/First Call consensus price target, earnings growth in the second half of 2014 as demand for their financial products increases in a strong economy could cause price targets to be raised and the stock to appreciate in price during the second half of 2014.
  • Ensco PLC (NYSE: ESV) is a deepwater driller / energy company that provides drilling services to the oil and gas industry worldwide.  The company’s stock is trading at only 9 times the prior twelve month’s earnings. After taking delivering of new state-of-the-art deep water drill rigs, the company is poised to increase earnings in 2014.  Ensco’s stock trades for approximately $54 per share.  Well belowMerrill Lynch’s has a $64 target price.  With the low Price to Earnings ratio (P/E ratio) and price target $10 higher than its current trading price, Ensco’s stock appears to provide good value for the second half of 2014.
  • General Motors Co. (NYSE: GM) stock is down about 5% since the beginning of 2014, due to a number of high-profile vehicle recalls.  The recalls, which have totaled more than fifty during 2014, have caused General Motors’ earnings to crater, as the company writes of billions of dollars to cover the cost of the recalls.  This has caused General Motors’ P/E ratio to spike to over 20.  However, long-term oriented value investors may find value in General Motors stock price, as earnings eventually normalize and the stock recovers from the company’s recent debacles.
  • Hess Corp. (NYSE: HES) is in the energy space and is in the process of transforming the company to a Master Limited Partnership, as it spins off its well known green and white retails gasoline service stations.  Hess Corp’s stock is trading at approximately 8 times the past twelve month’s earnings.  The company is considered a value play for remainder of 2014, not only because of its cheap price compared to the past year’s earnings, but also because it may be a takeover play, as larger oil companies look to add the modestly sized Hess Corp to their holdings.  Merrill Lynch has a price target for Hess Corp of $130, which is well above the consensus price target of $100.48, but seems reasonable given the stock’s extremely low P/E ratio.
  • Hewlett-Packard Co. (NYSE: HPQ) is trading at approximately 12 times trailing twelve month earnings and 9times 2014 estimated earnings.  With the company continuing to use cash to pay down debt, buy shares back, and maintain the quarterly dividend, the stock has a lot of backing to continue to move higher during the second half of 2014.  The consensus price target for Hewlett-Packard’s stock is $36.11, which is about a 10 percent increase from current trading levels.

MET Life

  • MetLife Inc. (NYSE:  MET) is one of the largest insurance companies in the United States.  The company trades at approximately 9 times estimated 2014 earnings.  MetLife also sells insurance, employee benefit programs, and annuities in many parts of the world, and is in a strong position to grow earnings during the second half of 2014.  The consensus analyst price target is $61.13. With MetLife trading at approximately $56 and low forward-looking P/E ratio, the company seems like a bargain.
  • Valero Energy Corp. (NYSE: VLO) is an energy company involved in refining and distributing petroleum products, including retail distribution at thousands of service stations throughout the United States.  While trading at only 8 times estimated 2014 earnings, what really has stock analysts excited about Valero Energy is the company’s Texas-based refining facilities that process the increasing quantity of heavy tar sands crude oil that is transported from Canada and the interior of the United States to the Texas Gulf Coast.  Analysts expect the growth rate for Valero Energy to exceed 20% over the next few years.  Given its low 2014 P/E ratio and high growth rate, Valero Energy appears to be undervalued.  Analysts have set a price target of $62.48 for Valero Energy’s stock, which is considerably higher than its current $50 price.

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