Did you get $5,000? Buy and Hold These 3 Value Stocks for Years

There’s no denying that growth stocks have been leading the way over the past few years. But you’re not crazy if you feel like it’s time for a change. Between high interest rates, slowing economic growth, and expensive growth names, the market may soon start rewarding less exciting stocks.

To that end, let’s summarize three value stocks to get into right now and hold on to for a few years. Not only are they all more than reasonably priced, but their services and products are sure to be in demand well into the future.

1. ExxonMobil

Energy stocks are always tricky to trade. They tend to move with the ebb and flow of crude oil prices, which in themselves are unpredictable. What’s making it even trickier to navigate right now is the growing adoption of alternative energy sources like solar power and the emergence of pure electric vehicles. It seems like we are running out of oil.

But don’t be too quick to write oil’s obituary. In fact, the world will need large amounts of crude oil (which becomes gasoline) and natural gas for decades to come. According to figures from the U.S. Energy Information Administration, the Organization of Petroleum Exporting Countries (OPEC) projects daily oil demand to be 116 million barrels in 2045, an increase from the planet’s current consumption rate of about 100 million barrels per day. It’s a shame. OPEC’s outlook is consistent with those of Standard & Poor’s and McKinsey.

What happened to renewable energy? naught. But the transition to cleaner energy sources is not only expensive but also slow. For perspective, despite all the progress made within the United States alone, the EIA reports that less than a quarter of America’s electricity comes from renewable energy sources such as solar and wind.

The largest single source of electricity generation is natural gas. And the collapse of domestic energy sources is similar to that of the rest of the world. Meanwhile, the International Energy Administration reports that there will only be 26 million electric vehicles in regular use as of 2022. This is less than 2% of the total number of vehicles on Earth, which is less than 1.5 billion.

That means we have a long way to go before we get off oil.

There are certainly many ways to connect to this reality. oil giant ExxonMobil (XOM 2.87%) However, the company’s stock is priced at less than 12 times trailing earnings per share. The company is not only large enough to fully finance new project acquisitions, but is also investing aggressively in exploration and new resource development. For example, earlier this month ExxonMobil began large-scale exploration plans in Guyanese waters near wells that are already producing hundreds of thousands of barrels per day.

2. Bank of America

If you don’t like the idea of ​​owning bank stock right now, you’re not alone. Economic lethargy is harming them too, and banks’ charge-off rates may soon rise as loan delinquencies and defaults begin to rise. There may be low-risk, high-reward options.

But what if the risks facing banks are being exaggerated while the banks themselves are being underestimated?

It certainly will be now. bank of america (BAC 2.84%) It’s an interesting prospect, but the stock is priced at less than 10 times last year’s earnings and less than 11 times this year’s expected earnings per share. Fourth quarter provisions for overall credit losses actually fell below third quarter levels and were consistent with fourth quarter 2022 provisions despite a larger loan portfolio and higher probability of loan defaults (although credit card charge-offs and delinquency rates were significantly higher). ) ). Interest income increased significantly last quarter thanks to higher interest rates, and deposits, loans, rentals and assets all increased slightly year-on-year, despite the headwinds expected to blow.

The analyst community is calling for a slight decline in earnings this year despite modest revenue growth. However, as the world undergoes a recession, both top and bottom lines are expected to return to long-term growth next year.

It’s also hard to argue that BofA isn’t a stalwart in an industry the world needs as long as the money exists.

boring? Maybe a little. But don’t sweat it. Just because stocks are boring doesn’t mean investors are less productive. New Bank of America shareholders will also participate, with a healthy dividend yield of 2.9%.

3. Taiwan semiconductor manufacturing industry

Add it last. Taiwan Semiconductor Manufacturing (TSM -0.19%) If you have $5,000, add it to your list of value stocks so you can consider buying them over the next few years. You won’t need it anytime soon.

great. They are generally not classified as growth stocks. In fact, it’s pushing the boundaries of what stocks qualify as value stocks. In fact, it has a trailing price/earnings ratio of 25 and trades at just over 22 times this year’s expected earnings per share. By market standards, it’s not that cheap.

But the stock is cheap by its own historical standards, especially when combined with Taiwan Semiconductor’s growth rate. Sales this year are expected to improve by more than 20% and grow at about the same level next year. Revenue growth is expected to accelerate further in 2025 as the global economy regains steam and demand for semiconductors, microchips, and processors solidifies.

Data source: StockAnalytic.com. Chart by author. The unit is billions of New Taiwan dollars.

But even these estimates may be too conservative. Technology market research firm IDC expects the global semiconductor market to grow 20% this year.

This growth is obviously important to all chipmakers, but it’s especially relevant for investors interested in owning Taiwan Semiconductor. About two-thirds of the world’s semiconductors are produced in Taiwan, and more than 90% of the most advanced chips on the planet are produced there. Taiwan Semiconductor Manufacturing accounts for most of that production. Therefore, industry-wide growth brings disproportionate benefits to these companies.

The rest of the world is trying to wean itself off its dependence on Taiwan and Taiwan Semiconductor Manufacturing Company. Following supply chain disruptions due to COVID-19 lockdowns in 2020 and 2021, several major technology companies have begun planning production facilities to operate in the United States and Europe.

However, the broader scope of these plans actually includes, rather than replaces, Taiwan Semiconductor. For example, it is planning a chip foundry in Phoenix that will supply iPhone manufacturers. apologize It will actually be a facility owned and operated by Taiwan Semiconductor Manufacturing.

Connect the dots. As long as the world uses technology, it will need Taiwan Semiconductor.