Value stocks typically trade at discounts to the broader market, offering patient investors the opportunity to buy businesses when they’re out of favor. The key risk, however, is that these stocks are usually cheap for a reason – five cents for a piece of fruit may seem like a great deal until you find out it’s rotten.
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. Keeping that in mind, here is one value stock offering a compelling risk-reward profile and two climbing an uphill battle.
Two Value Stocks to Sell:
Frontdoor (FTDR)
Forward P/E Ratio: 12x
Established in 2018 as a spin-off from ServiceMaster Global Holdings, Frontdoor (NASDAQ:FTDR) is a provider of home warranty and service plans.
Why Does FTDR Worry Us?
- Demand for its offerings was relatively low as its number of home service plans has underwhelmed
- Anticipated sales growth of 9.9% for the next year implies demand will be shaky
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 1.4 percentage points
Frontdoor’s stock price of $39.39 implies a valuation ratio of 12x forward price-to-earnings. If you’re considering FTDR for your portfolio, see our FREE research report to learn more.
Ball (BALL)
Forward P/E Ratio: 13.4x
Started with a $200 loan in 1880, Ball (NYSE:BLL) manufactures aluminum packaging for beverages, personal care, and household products as well as aerospace systems and other technologies.
Why Do We Think BALL Will Underperform?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Projected sales growth of 2.8% for the next 12 months suggests sluggish demand
- 5.8 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
Ball is trading at $47.60 per share, or 13.4x forward price-to-earnings. To fully understand why you should be careful with BALL, check out our full research report (it’s free).
One Value Stock to Watch:
Kirby (KEX)
Forward P/E Ratio: 13.1x
Transporting goods along all U.S. coasts, Kirby (NYSE:KEX) provides inland and coastal marine transportation services.
Why Does KEX Stand Out?
- Operating margin improvement of 31.6 percentage points over the last five years demonstrates its ability to scale efficiently
- Share repurchases over the last two years enabled its annual earnings per share growth of 61.3% to outpace its revenue gains
- Returns on capital are increasing as management’s prior bets are starting to bear fruit
At $90.73 per share, Kirby trades at 13.1x forward price-to-earnings. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.