Posted January 18, 2022
By Zach Scheidt
3 Exciting Stocks You Never Thought Were Hot!
They say that beauty is in the eye of the beholder. And that statement is especially true in the stock market.
After all, who's to say tech stocks are more attractive than bank stocks?
And why would you pay more to own an unprofitable space exploration company than a profitable manufacturing firm?
For the last several years on Wall Street, "beauty" has been a shallow, skin-deep measure that led many investors to take way too much risk. These investors were mesmerized by flashy sales presentations and optimistic long-term projections.
Meanwhile, quality stocks that I consider beautiful on the inside have been left standing in the corner.
Thankfully, tastes change and true character eventually shines through.
Today, I want to share three hot stocks that have true character and strong earnings to help drive share prices higher.
And since investors previously thought of these names as unattractive, you'll be getting a good deal buying shares at today's prices!
3 Value Stocks That Are Hot in Today's Market
It almost sounds backward to say this, but value stocks are hot right now.
While I was driving my daughter to school this morning, I started rambling about how I was going to write to you today about value stocks.
As you can imagine, she rolled her eyes and told me I was boring.
But when I started talking about how we could invest some of the money from her paycheck in value stocks — and how she could make extra money from these stocks — suddenly she was interested!
That's kind of the reaction many investors on Wall Street have been having this year.
After years and years of ignoring great companies that make solid profits, these stocks are now roaring to life.
And even though the strength of these names isn't showing up in the major averages like the Dow Jones or Nasdaq Composite, real people are making real money investing in this overlooked area of the market.
So what exactly is a value stock?
Value stocks are simply stocks that trade for a good value when compared to the earnings a company generates.
So while many speculative growth stocks cost hundreds of times their potential profits (if they even have profits to show), value stocks are trading for just 15 times, 10 times or even single-digit times their annual profits.
Below are three of my favorite value plays for today's market.
I think these companies will generate some hot returns in your account this year even if the companies themselves aren't the sexiest concepts in the world.
Hot Value Stock #1: Cummins Inc. (CMI)
Our first hot value stock holds a special place in my heart because of where the company is headquartered.
Cummins Inc. (CMI) is based in Columbus, Indiana, a small midwest town where my grandparents raised my dad.
If you walk behind the city's oldest churches, you'll find graveyards with Scheidt, Schultz, Forster and plenty of other German last names.
Years ago, this small farming town was established by German immigrants. But today, the town employs thousands of workers in several key manufacturing companies.
CMI is one of the largest such companies. And it makes high-performance diesel engines for heavy trucks and industrial machines along with some of the strongest pickup trucks in America.
The stock traded lower for much of last year as investors focused on growth names. But recently, shares have started moving higher as value stocks like CMI come back into focus.
Wall Street researchers expect the company to earn $18.15 per share this year.
And since the stock is trading near $235, that means you can buy shares of CMI for just 13 times expected profits.
That's well below the 22 times expected profits you'll have to pay for the average stock in the S&P 500.
CMI also pays a 2.4% dividend yield. So while I would buy the stock expecting the price to move higher, it helps to get paid extra income while you wait!
Hot Value Stock #2: Deere & Co. (DE)
I'm taking a trip down memory lane as I work through my favorite value stocks.
After fighting through Europe during WWII, my grandpa settled in Columbus, Indiana and became a tool and die maker.
At the same time, he still helped his father (I called him Papaw) keep up with the Indiana farm. The two of them would grow corn, soybeans and hay.
I still remember riding around on Papaw's green John Deere tractor when I was just a kid.
Today, Deere & Co. (DE) is another great value stock even though the stock trades near $380 per share!
The company is expected to earn $25 per share this year and grow that profit to $26.66 in 2023. So if you buy shares today, you'll be paying just 15 times this year's expected earnings.
Shares of DE moved sideways through much of last year. But now that value stocks are becoming more popular, DE is very close to breaking out to all-time highs.
One thing to keep in mind is that while DE has been around for decades, the company is still innovating and adding new technology.
In fact, the last time I was at the Consumer Electronics Show in Las Vegas, DE was one of my favorite tech companies that I saw.
You wouldn't believe the technology that goes into the company's newest equipment.
I don't have time to explain the technology to you today. But maybe sometime in the next few weeks, we can do a deeper dive into this name.
In the meantime, you can buy shares of DE ahead of the stock's next breakout. And you can also get paid a 1.1% dividend yield while you hold your investment!
Hot Value Stock #3: Ford Motor (F)
Our final value stock for today is Ford Motor (F).
The stock has been one of my favorite value plays for a long time. But it wasn’t until recently that shares really started picking up momentum.
Government stimulus coupled with low interest rates has made it easier for Americans to afford new cars. And that demand has helped to drive prices for new cars higher.
Meanwhile, the supply chain crisis has made it more difficult for manufacturers like Ford to make enough vehicles to meet demand.
But as supply chains start to unravel, Ford’s business is picking up. And as the company publicizes its plans to roll out more electric vehicles, Ford is becoming more “sexy” in the eyes of investors.
Still, even after its recent run up, you can still buy shares of Ford for just 12 times expected earnings this year.
And the company is expected to grow profits throughout 2022 and into 2023 thanks to a growing global economy and more demand for electric vehicles.
Shares of Ford only pay a small dividend right now. But as the company’s profits ramp back up following the coronavirus crisis, I expect Ford’s dividend to increase as well.
So there you have it… three “beautiful” plays for your investment portfolio in 2022. They may not be high-growth “exciting” stocks like the ones that were popular at the beginning of last year.
But the gains you can lock in from these value plays are every bit as valuable as profits you can make from speculative growth stocks.
Plus, you can bag those profits while taking less risk!
Here's to living a Rich Retirement,
Editor, Rich Retirement Letter