The 25 Cheapest Value Stocks In The Market Today

The value vs. growth trade is in full swing as we enter 2022. After years of growth stock outperformance, many are calling for value stocks, or stocks that are cheap based on earnings, cash flows, assets or sales, to finally have their day in the sun and regain their market beating ways. In this article, I outline the case for value investing and highlight the two dozen or so stocks that score highest based on a time-tested value methodology I run at Validea.

A quick sampling of recent headlines gives us an indication of where the experts are at when it comes to value over growth given where we are in the economic and market cycle.

·       Great Stock Rotation Has Legs, Wall Street Pros Say, Bloomberg

·       Cheap Stocks to Finally Have Their Day in 2022, Investors Say, Bloomberg

·       2022 is going to be a great year for value stocks: Ariel’s John Rogers, CNBC

·       The stock market has been flipped upside down in 2022., Business Insider

The potential for value stock outperformance doesn’t just happen out of thin air though. The ingredients need to be right for value stocks as a group revert higher.

1. Higher inflation is likely to lead to higher interest rates. Higher interest rates hurt the value of longer duration growth stocks since those companies are valued much more on their cash flows well out into the future. When interest rates increase, it makes those future cash flows worth less in today’s dollars. Value stocks, on the other hand, are valued more based on near term cash flows and so they aren’t as sensitive to rate increases when deriving their intrinsic value. 

2. The valuation spread between the market’s cheapest stocks and the most expensive is very wide and historically when the spread has been this wide, it has boded well for the performance of value vs. growth going forward.

3. We know that investors feel the pain of losses twice as much as the value of gains, so weakness in former high-flying funds like the ARK Innovation ETF, SPACs and other areas of the market trading at unsustainable valuations has investors waking up to the reality that many of these expensive growth names look vulnerable to a valuation reset lower.

The stage now looks set for better performance out of the value stock cohort.

To uncover the top value stocks in the market today I pulled the names from one of the top performing models I run at Validea.com, which is inspired by the work, writing and long-term research by Jim O’Shaughnessy and his seminal book, What Works on Wall Street, which outlines a series of simple factor-based strategies that have performed well over time.

To screen for value stocks, I use a “value composite” methodology, which ranks firms by multiple valuation multiples, including the price-to-earnings ratio, price-to-book, price-to-sales, price-to-cash flow and enterprise value-to-Ebidta, and then calculates a combined score using all of those ratios. I then select the top 1% of stocks in the market using this value composite. By looking at all these valuations metrics, we are getting the income statement, balance sheet and cash flow statement into each one of the variables, which gives you a more thorough analysis than just one of the measures in isolation.

The time looks right for many investors to start tilting toward value. Here are some value stocks worth taking a look at.