S&P 500: These 12 Cheap Value Stocks Are Now Table-Pounding Buys, Analysts

Cheap is in style again with S&P 500 stocks and ETFs. But can you tell a good value from a trap?

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Analysts are pounding the table on a dozen S&P 500 pure value stocks, including a slew of communication services plays like T-Mobile US (TMUS) and Dish Network (DISH) plus industrials like Alaska Air (ALK), says an Investor’s Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. And analysts expect each of these stocks to jump 30%, or more, in 12 months based on their price targets.

It’s just one sign of investors’ newfound interest in value stocks and ETFs.

“Investors are concerned about overheated market valuations and inflation and rate-related risks moving into 2022,” said Lara Crigger, managing editor of ETFTrends.com. Growth stocks tend to win amid low rates, providing a headwind now that rates might rise, she says. “Value stocks will likely have plenty of runway left and remain top of mind for many investors for some time to come,” Crigger said.

Surge Into S&P 500 Value

The rush into S&P 500 value stocks is powerful and definitive. Flows and price gains of value ETFs tell the story.

ETFs focused purely on value stocks are pulling ahead of those targeting growth. The $3.2 billion-in-assets Invesco S&P 500 Pure Value ETF (RPV) is up more than 3.5% this year going into Thursday, while the Invesco S&P 500 Pure Growth ETF (RPG) slipped into a correction by falling more than 11% this year.

And it’s not just a 2022 phenomenon. The value ETF is up nearly 27% over the past 12 months, strongly racing past the 10.9% gain by the growth version.

Investors are pouring money into value ETFs. The top 10 most-popular value ETFs hauled in $11.2 billion in the past three months, Crigger says. That outpaces the $6.4 billion going into the top growth funds by 75%.

Analysts Finding Upside In S&P 500 Value

Is it too late to add value to your portfolio? There’s still upside left with many S&P 500 value stocks, analysts say.

Analysts think pure value stocks in the S&P 500 stand to gain an average of 13.1% over the next 12 months. That exceeds the typical 10% annual return of the S&P 500.

Half of analysts’ favorite 10 stocks among the pure S&P 500 value plays hail from the communications services sector. No. 1 on the list is mobile communications firm T-Mobile US. Analysts think the stock, down 9% this year, should be worth nearly 58% more in 12 months.

Not all value favorites are down this month, though. Analysts think Dish Network will jump more than 48% in 12 months. And that’s after rising more than 5% this year already. Alaska Air, too, is up 4.4% this year. But analysts think it will be worth upwards of 40% more in 12 months.

Playing S&P 500 Value Run With ETFs

Another option is choosing a value ETF. But it isn’t easy. There are 89 value ETFs, Crigger says.

“You can’t just pick blindly whichever ETF has ‘value’ in the name,” she said. “Nobody can agree what, precisely, determines whether a stock is value, growth, or neither, and as a result, you tend to see a lot of portfolio overlap between value and growth ETFs.”

And don’t assume your broad S&P 500 fund has you covered either, says Todd Rosenbluth, head of ETF and mutual fund research at CFRA. There are more pure value stocks, 118, than pure growth, 55, in the S&P 500. But growth sectors like technology dominate the S&P 500 with a nearly 29% weighting.

If you’re looking for strict rules on what’s value, the Invesco S&P 500 Pure Value ETF does that. It only includes S&P 500 stocks considered entirely value, and not a crossover with growth. No. 1 value pick, T-Mobile US, is a 0.3% position in the ETF. And it’s working. The Invesco value ETF is outperforming all but one of the largest value ETFs.

But Rosenbluth prefers ETFs that own stocks considered values within their sector, like iShares Edge MSCI Value Factor ETF (VLUE), iShares S&P 500 Value (IVE) and Fidelity Value Factor ETF (FVAL). He thinks their structure makes them less likely to swing back and forth toward growth.

One thing’s for sure. If you want value in your portfolio, a typical diversified portfolio likely won’t get you there. “Investors that want exposure to value stocks will need to augment their portfolios,” Rosenbluth said.

Cheap Is Chic: Analysts’ Favorite S&P 500 Value Stocks

All seen rising 30% or more in 12 months, say analysts

Sources: IBD, S&P Global Market Intelligence based on S&P 500 Pure Value index, * – to analysts’ 12-month target, News Corp. owns Investor’s Business Daily

Follow Matt Krantz on Twitter @mattkrantz

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