The year ahead should be a decent one for stock markets. The global economy may not be red hot right now, but at least growth is in the cards.
But this year could also be a transitional one, with value stocks finally starting to shine relative to growth stocks. Investors would be wise to begin positioning accordingly.
To this end, here's a rundown of three value stocks to consider stepping into sooner rather than later.
JPMorgan Chase
The past couple of years have been tough for the banking industry. Not only have inflation and rising interest rates complicated matters, but the rapid streak of rate hikes has also crimped the lending industry's profit margins.
There's a reason, however, most bank stocks have still logged gains during this turbulent time. That's the bullish foreseeable future. The dust is finally settling on recent interest rate volatility, allowing lenders to offer loan terms that are not only attractive to borrowers, but also profitable for banks. Wider spreads between near-term and longer-term interest rates are also prompting corporate borrowers to raise money by issuing more bonds than they have in some time now -- not because they have to, but because they want to.
This uptick in demand for debt-based funding along with lending's improved profit margins obviously bodes well for all major banking names. It arguably bodes best for the biggest name in the business though. That's JPMorgan Chase (JPM 1.37%), which boasts $3.6 trillion in assets stemming from a combination of basic consumer banking, wealth management, investment banking, credit card services, and more. Indeed, after a predictable revenue and earnings lull between 2021 and 2022, the company has powered through recent economic headwinds to reach record-breaking figures on both fronts.
JPM Revenue (Quarterly) data by YCharts
And that's in a subpar economic environment. It could perform even better against a more bullish backdrop. The Organisation for Economic Co-operation and Development expects global gross domestic product growth of 3.3% for 2025, faster than 2024's estimated full-year pace of 3.2%.
There's certainly room for JPMorgan shares to continue being driven higher by this economic growth, too. This stock is priced at only about 14 times this year's expected per-share earnings of $17.01, and the company's been more likely than not to exceed earnings estimates.
Target
JPMorgan isn't the only company poised to benefit from an economic bounce-back. Retailer Target (TGT -1.02%) is also underestimated in light of what awaits.
With nothing more than a passing glance this company doesn't look all that different from industry titan Walmart, which has done exceedingly well of late thanks to its ability to offer real value to all income demographics.
Take a closer look though. Target's merchandise consists of more discretionary goods and fewer consumer staples. Its prices aren't always exactly competitive either. That's why its revenue has been stagnant since early 2022, and why same-store sales growth was negative for most of 2023.
The tide is turning, however.
Fueled by fresh economic growth that's expected to persist through this new year, the retailer reported a slight improvement in same-store sales for its third quarter of last year, and an even healthier 2.4% uptick in foot traffic. Total sales grew 1.1% year over year as well, underscoring the argument that consumers are finally starting to splurge at least a little more than they have of late. Look for this discretionary spending to keep growing as 2025 marches on, too, driving this company's top line up to the tune of about 3%. That's still not great, but it's certainly a solid start to better days.
What's curious is that Target stock doesn't yet reflect this brewing economic rebound. The shares are still down nearly 50% from 2021's pandemic-prompted peak, with most investors seeing the proverbial glass as being half-empty rather than half-full.
Once the sentiment tide finally takes a turn for the better, however, there's lots of room for upside. Target shares are currently trading at less than 15 times 2024's expected earnings of $8.59 per share, and about 14 times this year's projected per-share bottom line of $9.22. Both are near multiyear lows for the retailer's stock.
The kicker: Newcomers will be stepping in while Target's forward-looking dividend yield stands at 2.9%. That's based on a dividend, by the way, that's been raised every year for the past 53 years, qualifying this stock as one of only a few Dividend Kings.
Berkshire Hathaway
Last but certainly not least, add Berkshire Hathaway (BRK.A 0.88%) (BRK.B 0.55%) to your list of top value stocks to buy in January.
Berkshire Hathaway is a conglomerate consisting of several dozen privately owned businesses (including GEICO insurance, flooring company Shaw, Benjamin Moore paint, Duracell batteries, and Clayton mobile homes just to name a few) plus a bunch of individual stocks purchased with Berkshire's otherwise idle cash. In fact, its portfolio of publicly traded stocks only accounts for about a third of Berkshire Hathaway's total value. The rest comes from its cash hoard or privately held companies.
Nevertheless, Berkshire most definitely has all the attributes of a value stock. Its holdings like Duracell and Shaw are slow-growing but reliable cash-cow operations, while its individual stock holdings are largely handpicked by legendary value investor Warren Buffett.
And the usual valuation metrics say as much... to the extent they can be calculated for this complicated conglomerate. Numbers from Morningstar indicate this stock's current price-to-book value is in the ballpark of 1.5, while its trailing price-to-earnings ratio (based on non-GAAP income) stands just a little under 9. Both are well below the S&P 500's equivalent valuation metrics at this time.
This relatively low price still isn't the bigger reason value-minded investors might want to go ahead and add this ticker to their portfolio though. Rather, the chief reason to consider a stake in Berkshire Hathaway here and now is simply that this arrangement of privately held and publicly traded companies -- along with its underlying value stock-picking paradigm -- works regardless of who's in charge. Given enough time, Berkshire shares reliably outperform the broad market.
These same shares should do particularly well in an environment that firmly favors value stocks again.
