Value investing has created more billionaires than any other strategy, like Warren Buffett, who built his fortune by purchasing wonderful businesses at reasonable prices. But these hidden gems are few and far between - many stocks that appear cheap often stay that way because they face structural issues.
Identifying genuine bargains from value traps is something many investors struggle with, which is why we started StockStory - to help you find the best companies. That said, here is one value stock trading at a big discount to its intrinsic value and two climbing an uphill battle.
Two Value Stocks to Sell:
Fortune Brands (FBIN)
Forward P/E Ratio: 14.4x
Targeting a wide customer base of residential and commercial customers, Fortune Brands (NYSE: FBIN) makes plumbing, security, and outdoor living products.
Why Is FBIN Risky?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Earnings per share fell by 9.5% annually over the last two years while its revenue was flat, showing each sale was less profitable
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 6.4 percentage points
At $57 per share, Fortune Brands trades at 14.4x forward P/E. Check out our free in-depth research report to learn more about why FBIN doesn’t pass our bar.
Zimmer Biomet (ZBH)
Forward P/E Ratio: 12.3x
With a history dating back to 1927 and a presence in over 100 countries worldwide, Zimmer Biomet (NYSE: ZBH) designs and manufactures orthopedic products including knee and hip replacements, surgical tools, and robotic technologies for joint reconstruction and spine surgeries.
Why Are We Wary of ZBH?
- Annual revenue growth of 2.6% over the last five years was below our standards for the healthcare sector
- Constant currency growth was below our standards over the past two years, suggesting it might need to invest in product improvements to get back on track
- ROIC of 4.2% reflects management’s challenges in identifying attractive investment opportunities
Zimmer Biomet is trading at $99.92 per share, or 12.3x forward P/E. Read our free research report to see why you should think twice about including ZBH in your portfolio.
One Value Stock to Buy:
HCA Healthcare (HCA)
Forward P/E Ratio: 14.9x
With roots dating back to 1968 and a network spanning 20 states, HCA Healthcare (NYSE: HCA) operates a network of 190 hospitals and 150+ outpatient facilities providing a full range of medical services across the US and England.
Why Is HCA a Top Pick?
- Unparalleled scale of $72.7 billion in revenue gives it negotiating leverage and staying power in an industry with high barriers to entry
- Share buybacks catapulted its annual earnings per share growth to 17.5%, which outperformed its revenue gains over the last five years
- Free cash flow margin expanded by 8.9 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
HCA Healthcare’s stock price of $401.99 implies a valuation ratio of 14.9x forward P/E. Is now a good time to buy? See for yourself in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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