Value stocks give investors a margin of safety from market turbulence. These stocks can continue to gain value, and some even have the potential to outperform the stock market. However, most value investors prioritize positive returns and cash flow over crushing the stock market.
Granted, it’s still possible to generate meaningful returns with value stocks. Investors should look at a company’s financials and valuation when assessing if a value stock makes sense for their portfolios. These are some of the top value stocks worth considering.
American Express (AXP)
American Express (NYSE:AXP) is attracting a younger customer base while delivering on its multi-year growth plan. The fintech firm wants to achieve 9% to 11% year-over-year (YoY) revenue growth beyond 2026 along with EPS growth in the mid-teens.
The company delivered on both of those fronts in the first quarter of 2024. Revenue increased by 11% YoY while net income was up by 34% YoY. Profit margins are soaring, and that trend should continue since more than 60% of new cardholders were Millennials or Gen Z consumers.
Shares are up 29% year-to-date and offer a generous 19 P/E ratio. The stock currently has a 1.17% yield and an impressive dividend growth rate. American Express hiked its dividend by 17% this year and regularly maintains a double-digit annualized growth rate. Profit margin expansion combined with top-line growth should support further dividend hikes and make the valuation more enticing.
Caterpillar (CAT)
Caterpillar (NYSE:CAT) has been selling construction equipment for almost 100 years. The company has withstood many economic downturns, including the Great Depression. The stock has a 16 P/E ratio and offers a 1.46% yield. Caterpillar has maintained an annualized dividend growth rate of 8.04% over the past decade and has raised its dividend for 31 consecutive years.
The construction giant’s Q1 2024 earnings report was a mixed bag. On one hand, revenue was slightly down YoY, dropping from $15.9 billion to $15.8 billion. On the other hand, Caterpillar was more efficient with its capital and saw its profit per share surge from $3.74 to $5.75. That’s a 53.7% YoY increase. Caterpillar also deployed $5.1 billion toward dividends and stock buybacks to increase shareholder value.
Caterpillar stands to benefit as interest rates decline. The recent news of cooling inflation can pave the way for lower interest rates. This development can lead to more construction projects, which would require Caterpillar’s equipment.
Waste Management (WM)
You don’t always need an innovative tech company to outperform the stock market. Sometimes, it’s the simple things that lead to high returns. Waste Management (NYSE:WM) fits the bill and will continue to generate demand in any economy.
Shares are up by 18% year-to-date and are up by 93% over the past five years. The stock trades at a 34 P/E ratio and offers a 1.43% yield. The company has maintained an annualized dividend growth rate of 8.36% over the past five years.
Waste Management serves more than 20 million customers in residential, commercial, industrial and other industries. That customer base was enough for the company to achieve 5.5% YoY revenue growth in Q1 2024. Net income grew by 32% YoY to bring the company’s net profit margin to 13.72%.
Wall Street analysts have rated the stock as a Moderate Buy. The average price target suggests a 7% upside from current levels.
On the date of publication, Marc Guberti did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.