How to Buy Top Value Stocks in 2020
Buying top value stocks in a significantly overvalued stock market environment is not an easy task. All three major US stock market indices reported one of the shortest bear trends so far this year. Excluding the month of March, the US markets have been rallying at a robust pace. The S&P 500, the broader market index, soared 5.19% year-to-date, while the Nasdaq scored the largest 38.68% year-to-date gain. The Dow Jones Industrial Average, which largely follows economic trends, is now in positive territory after a massive selloff at the beginning of the second quarter. In addition to higher than average valuations, the investors also need to consider the economic uncertainty risk. Global economic conditions have been drastically impacted by the spread of COVID-19 in the last couple of months. In fact, the market pundits expect the uncertainty to continue over the coming quarters. The US, the world’s largest economy, has reported a staggering 39% gross domestic product contraction for the second quarter, marking the largest economic drop in recorded history.
The second-largest economy, China, has also generated big economic contraction in the past quarter. The World Bank Development Report says the global economy is likely to shrink in the range of 5.2% and 8% this year. The report also suggested that developing economies could get a harder hit than developed economies. Learning to trade stocks and buying value stocks in such a difficult market environment is a challenging task. However, we have completed over 15 hours in research to help you select the top eight value stocks that are likely to generate big returns for investors. Moreover, we will also help you to identify the brokers that offer share (non-leveraged) trading and share CFD (leveraged) trading at lower fees and commissions.
What to Look for When Buying Top Value Stocks?
It’s key to set specific criteria before placing investments in stocks. Below are a few factors that will help you identify the better candidates for your value stock portfolio:
What Is the Company Doing?
When you are selecting a stock for investment, it’s important to know what the company is doing and what are its future prospects. You should research its product portfolio and market share. Learning about their competitor’s performance also plays a big role in stock selection. This is because several highly rated and well-known companies can always be replaced by new players. Keeping an eye on business and product trends will also help you in selecting the best one.
How Have They Performed Financially?
Financial numbers always play a key role in stock price performance. Buying an undervalued stock with poor financial numbers is not a good investment strategy. You should check the revenue growth trends and what the future forecasts are. For instance, some companies such as Apple, Tesla and Amazon have been accelerating its revenue growth at a high double-digit rate. The earnings performance and cash generation are also the major financial metrics that you need to consider before selecting the value stock.
Some stocks are significantly overvalued, following robust rallies seen this year. Tech companies with a significant online presence have generated massive share price gains in the past couple of months. You should check their valuations and compare them with industry peers. Meanwhile, some companies that have been hardest hit by COVID-19 are also significantly undervalued.
Past performance has never been considered as a guarantee or an indicator of future performance. Although looking into historical financial numbers is important, investors have suggested to look at future forecasts before placing an investment. In addition to financial forecasts, investors should look at future fundamentals.
Top Eight Value Stocks to Buy Right Now
The largest tech company is among the biggest winners in the past few months. $AAPL stock price soared close to 60% year-to-date and the shares are up almost 131% in the last twelve months. Despite the recent share price gains, Apple stock has further upside potential in the coming days. This is due to confidence in its product line and new product introductions. The majority of market analysts expect Apple stock to hit $150 amid the launch of 5G supported products and revenue diversification strategies. JPMorgan analyst Samik Chatterjee: “While the $2 trillion market cap valuation in itself is a significant milestone, that AAPL shares crossed it in a year with significant COVID-19 disruption testifies to the recurring nature of not only its Services but also its Products, such that investors are now willing to pay a Services-like premium on the entire earnings stream and a modest premium on account of expectations for further revenue/earnings upside.”
Shares of $MSFT grew 55% in the past twelve months to an all-time high of $232. Its stock price is currently trading around $214. Microsoft revenue grew 12% year over year to $38 billion in the latest quarter. The full-year revenue grew 14% to $143.0 billion. The company’s strategy of moving towards a cloud business is adding to revenue growth. “Our commercial cloud surpassed $50 billion in annual revenue for the first time this year. And this quarter our Commercial bookings were better than expected, growing 12% year-over-year,” said Amy Hood, executive vice president, and chief financial officer of Microsoft. “As we drive growth across the company, we remain committed to investing in long-term strategic opportunities.”
The shares of $DIS look significantly undervalued, due to the massive share price selloff. Its shares are trading in a negative territory year-to-date. It’s among the hardest-hit companies amid pandemic. The company had closed its parks business due to virus spread. Its shares are currently trading around $134, down from 52-weeks high of $153. However, the company is likely to rebound in the days ahead. It has opened parks all over the world, while the streaming business has been advancing at a sharp pace. Citi has provided a price target of $150.
The shares of the largest retailer soared sharply as consumers are moving towards online platforms, due to social distancing policies. Amazon stock price jumped above the $3500 level for the first time in history. The shares are currently trading around $3200, up 82% in the past twelve months. Despite the recent share price gains, $AMZN stock price has further upside potential in the days to come according to market analysts. Goldman Sachs analyst Heath Terry has provided a $4200 price target, saying the accelerated adoption of e-commerce and cloud sets the stock up for out performance “well beyond the current crisis.”
The shares of the largest streaming company soared sharply amid massive subscriber growth during global lockdowns and staying-at-home policies/working-from-home policies became the norm for many. A Piper Sandler survey has indicated that the streaming giant subscribers are looking to keep their subscriptions even after COVID-19. In addition, half of the subscribers are willing to sustain membership even if the streaming company raises the price target. RBC has raised the $NFLX stock price target to $620, with outperform ratings. Its shares are currently trading around $500, up 60% year to date. The market analysts believe the streaming giant is likely to accelerate subscribers in the coming quarters.
American Airlines Group
The shares of the fourth largest US airline lost almost half of their value year-to-date, amid air travel restrictions. Its stock is currently trading around $13, down from a 52-weeks high of $32 a share. The share price selloff is presenting a buying opportunity for the long-term investors, as air carrier demand has steadily increased in the past couple of months. US Global Investors reported that air passengers hit 807K last Sunday. “We believe a return to the post-pandemic high of 863,000 could spur a second big wave of airline equity buying, making now a potentially opportune time to consider getting exposure,” the firm said.
It’s the third-largest air passenger carrier based on market capitalisation of $11 billion. The company has been adding to its capacity over the past months. It has boosted its September capacity schedule to 34% and October schedule to 40%. The airline says they are seeing a gradual improvement in demand, which will help in lowering the cash burn rate. United Airlines’ stock price is currently trading around $38, down more than 50% in the past twelve months. Its shares are likely to rebound in the coming days, due to easing travel restrictions.
The shares of the online payment company $PYPL soared sharply this year as users and businesses increased their use of online platforms due to COVID-19. Its second-quarter revenue of $5.26 billion grew 25% year-on-year and topped the consensus estimate of $5.00 billion. Its second-quarter net new active accounts came in at 21.3M. This marks the strongest quarter for net new active accounts in the company’s history. Its shares are likely to extend the momentum as the company expects full-year revenue to grow by 20% year-on-year to $21 billion.
How to Buy Value stocks?
Once you have selected your desired top value stocks to trade, either physically or via CFD trading, you’re now required to select the broker through which you would like to trade. Selecting the best broker to trade with is also very important, as each stockbroker has set different trading platforms and fee structures. Trade execution speed, fee structure, deposit, and withdrawal methods along with trading tools are key features that you need to check before selecting your chosen broker. We have selected a few of the most reputable and recognisable brokers in the industry that permit you to trade, buy and sell top value stocks through non-leveraged and leveraged trading.
Admiral Markets offers leading online trading services and gathers several regulated companies situated in different places around The World. Admiral Markets offers the possibility to trade over 8,000 instruments, including Forex and CFDs on stocks, commodities, indices, bonds, ETFs and cryptocurrencies. Trading CFDs on stocks with Admiral Markets is highly competitive, with commissions of 1 EUR on EUR-denominated stocks, 1 USD on USD-denominated stocks, and 1 CHF on CHF-denominated stocks, etc. Trading physical stocks and ETFs on various stock exchanges have a different scheme of commissions than the CFDs, but both options support the same instruments. Like the majority of Forex brokers, Admiral charges swaps – overnight fees/rollover fees for Forex and CFDs at the end of the day. With Admiral, you will have an inactivity fee of 10 EUR per month.
- Global Presence
- Regulated by Prominent Authorities
- Extensive Industry Experience (18 years)
- A small selection of FX pairs
- Does not provide services in the US
- No daily market analysis
- Zero commission for trading stocks
- Licensed by reputable authorities like FCA, ASIC, CySEC, FinCEN and MiFID II compliant
- High end facilities for investors that trade large amounts of money via eToro Club
- High spreads
- Withdrawal fees and conversion fees
- Limited customer support
One of the oldest brokers in the trading industry is City Index. Today, City Index is part of a powerful financial group listed on the New York Stock Exchange, GAIN Capital Holdings, Inc. (NYSE: GCAP). Their mission is to be a “stable partner invested in your success“, offering investors a wide selection of over 12,000 financial instruments, spanning across Forex, indices, shares and cryptocurrencies. When trading equities, a commission fee is applied and not a spread. Commission fees start from 0.08% (€10 minimum) for EU and UK shares, 1.8CPS ($10 minimum) for US markets and 20% margin is required for each trade.
- Licensed by eight prominent authorities, including FCA, ASIC, MAS, UAE
- Veteran of the industry with 37 years of experience
- Competitive spreads and commissions
- Powerful collection of research and analytics tools, such as Trader Central, Reuters news feed, market intelligence
- Does not serve clients in the US
- Limited number of payment options
- No social trading
Experiencing exponential growth in the last few years, FXTM has now established themselves as a reputable broker with offices spread across four continents. They attribute their success towards the fact that “[they] prioritise [their] clients’ needs above anything else”. FXTM proposes a suite of over 250 trading assets comprised of CFDs on Forex, commodities, indices and stocks. The Stock CFDs account type offers the following characteristics: instant execution, trading instruments available: 120+ US shares and 40+ European shares, no commissions, leverage fixed per asset (3:1 for European Stocks and 5:1 for US Stocks), minimum deposit requirement of $/€/£ 100, available currencies EUR, USD, GBP, among others.
- Special features: MT4 Forex Trading Indicators, FXTM Trading Signals, FXTM Pivot Points Strategy
- Zero commissions on share CFD trading
- Licensed by prominent authorities as FCA, CySEC, FSCA, FSC Mauritius and MiFID II compliant
- Withdrawal fees apply
- Does not provide services in US
- A small collection of trading assets
It stands among the top rated stockbrokers, due to its compliance with regulatory authorities and transparent fee structure. Its trading platform is user-friendly and they have developed advanced trading tools to help investors in improving returns on investments. The broker does not charge any commission on stock trading. Deposit and withdrawals are also free.
- Robust trade executions
- Wide range of trading tools and charts
- Excellent education material
- Does not accept non-US citizens
- Manually refresh the data
- Wide range of assets available
It’s considered one of the best brokers for beginners because of its user-friendly platform and zero commission on stock trading. The platform also offers top-rated educational material. The low deposit requirement is among the features that support beginners who are learning to trade stocks. It also offers a demo account to investors, which helps them test their trading strategies. You can open an account and trial it without making a deposit until you’re ready to trade, while taking advantage of all the learning opportunities until you’re ready to trade.
- Strong educational material
- In-person education is available
- The well-designed mobile apps
- You need to use multiple platforms to utilise your preferred tools
- Limited account selection
Interactive Brokers stand among the very best of stock brokers. It also does not charge any commission on stock trading. Deposit and withdrawals are also free of cost. It offers a wide range of trading tools and charts for stock trading. Along with stocks, the broker also permits traders to trade currencies, options, ETF’s, and indices.
- Enormously smart order execution
- Large range of offerings
- Educational material and trading tools
- Streaming data runs on a single device at a time
- IBKR Lite customers cannot use the smart order router
- Small or inactive accounts generate substantial fees
Stock markets are significantly overvalued at the moment but several top-rated stocks are presenting more upside potential in the days ahead. This is because of their strong product portfolio and aggressive growth forecasts. However, investors are suggested to extensively research each stock before opening an account, investing and taking any position. You need to look at future fundamentals, valuations and financial forecasts to assess future stock performance.
Frequently Asked Questions
What Are Value Stocks?
A value stock is a stock that is trading at a lower price compared to its future fundamentals. Any stock that you believe would have upside potential is considered to be a value stock.
What Is the Difference Between Value and Growth Stock?
Growth stocks are stocks that are likely to beat market performance, amid its aggressive revenue and earnings growth rates. Meanwhile, stocks that trade below their intrinsic value are considered as value stocks.
Do Value Stocks Perform Well During a Recession?
Value stocks are likely to perform well during the recession, because these companies don’t pay dividends. This is one factor that helps them investing in growth opportunities.