5 Value Picks as 2022 Approaches

2021 has been a great year. Coming off the pandemic-inflicted 2020, we’ve seen some really strong growth rates so far. But as expected, the pace of growth has moderated as we moved through the year, with the prospect of difficult comps in 2022 telling us that some caution may be in order.

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While the Fed maintains that inflation is transitory, based on the supply chain glitches that are artificially increasing prices, there could be a change in the stand next year when prices continue to increase and consumers have to pay more for basic necessities even as stimulus money is withdrawn and investors are done splurging on the holidays.

Another concern is the rising infection rates across Europe and also in the U.S. that have spurred.

Fresh infection rates across many parts of the developed world are leading to lockdowns in several places and increasing concerns that a third wave may be in progress.

Given these factors, it makes sense to stop rejoicing at the strength of 2021 and consider instead, stocks that are trading below their intrinsic values based on the outlook for 2022. All the better if these stocks also pay a dividend.

With that in mind, I’ve picked a few that could be worth adding to your kitty today-

Toll Brothers TOL

Toll Brothers builds single-family detached and attached home communities; master planned luxury residential resort-style golf communities; and urban low, mid, and high-rise communities, principally on the land it develops and improves.

The company will report October quarter results on Dec 7. Its earnings for the July quarter were 23.0% ahead of the Zacks Consensus Estimate, after which analysts raised their estimates for 2021 (by 9.4%) and 2022 (by 8.5%).

During the quarter, Toll Brothers saw record revenues, new contracts and backlog, with both units and value expansion, as demand remained extremely strong across geography and product type (with particular strength in affordable luxury and active adult communities) and average prices were raised to offset cost inflation.

While the fiscal fourth quarter (ending October) could soften with respect to the extremely strong demand last year, management appears confident that there will be gross margin expansion from thereon out on the strength of backlog pricing and cost management actions. One concern that remains is the labor shortage across the industry, which is pushing out deliveries.

The Zacks #2 (Buy) ranked stock has Value, Growth and Momentum Scores of A, B and D respectively. A Value Score of A generally indicates that the share price falls short of the intrinsic value of the shares. This is evident from its price to earnings (P/E) ratio of 6.52X (the average P/E of stocks in our universe based on 2022 earnings is 14X). And that’s despite the 50.7% appreciation in TOL share prices this year.

Toll Brothers belongs to the Building Products – Home Builders industry, which is in the top 26% of Zacks-ranked industries. And as most of us already know, when a buy-ranked stock is in the top 50% of industries, it has a relatively stronger chance of appreciation.

Analysts currently expect the company to grow revenue and earnings by 19.1% and 43.9%, respectively in 2022. Toll Brothers’ long-term growth is currently estimated to be 39.4%, one of the highest growth rates for any company.

It also pays a dividend that yields 1.03%.

Triton International Ltd. TRTN

Triton International is the largest lessor of intermodal containers (large steel boxes that are used for transporting freight by ship/rail/truck). The company also focuses on leasing chassis, which are used for transporting containers. It has operations across 16 countries.

Triton operates in robust market conditions, where volumes remain elevated even after the peak period. This of course is because of container vessel congestion off both the West and East coasts, as well as in Chinese ports and Europe, as available ships, containers, trucks and chassis are insufficient to handle the demand.

As a result, Triton had a utilization rate of 99.6% in the third quarter ending in September. It has also invested $3.4 billion to increase container capacity by 30%.

Not only that; the very high demand is driving very high prices for new and used containers and exceptionally high leasing rates, which along with refinancing activity (that lowers its interest rates) are improving its profitability. Triton also stands to benefit from the improved profitability and enhanced customer credit profiles of its shipping partners that have been using the situation to pay down their debt.

The company topped earnings estimates by 10.0% in the quarter on revenue that beat by 1.9%. Its 2022 estimate promptly jumped 12.1%. It is currently expected to grow revenue and earnings by 7.1% and 4.8%, respectively in 2022. For the long term, analysts expect the company to grow 10.0%.

TRTN shares are up 24.7% this year. The P/E based on 2022 earnings is 6.43X, indicating that the shares are undervalued. It has a Value Score of A.

The Zacks Rank #2 company belongs to the Transportation – Equipment and Leasing industry (top 21%). The entire industry is benefiting from the supply chain problems highlighted above and Triton being a major player, has long-term agreements in place that will ensure strong profitability next year as well.

It also pays a dividend that yields 3.78%.

Olin Corporation OLN

Olin Corporation is a vertically-integrated producer and distributor of chemical products across the world and also makes ammunition in the U.S.

The Zacks Rank #1 (Strong Buy) stock has Value, Growth and Momentum Scores of A, A and C, respectively. The shares are up 145.1% this year. They trade at 6.67X 2022 earnings, making it one of the cheapest stocks out there.

It belongs to the Chemical – Diversified (top 38%).

In the last quarter, Olin missed revenue expectations by 1.7% while beating earnings estimates by 14.4%. The results were driven by stronger pricing across all product lines as offset by higher input and other costs also across all product lines and lower volumes at chlor alkali and vinyls.

The strong demand outlook had analysts raising their 2022 estimates by 23.3%. They currently expect Olin to grow revenue and earnings by a respective 4.2% and 4.6% in 2022 coming off the tremendous strength in 2021 when revenue and earnings are still expected to grow a respective 53.5% and 740.0%. In the long term, Olin is expected to grow 56.0%.

Olin pays a dividend that yields 1.33%.

The Chemours Company CC

The Chemours Company is a leading provider of performance chemicals that are key ingredients in end-products and processes across a host of industries including plastics and coatings, refrigeration and air conditioning, mining and general industrial manufacturing and electronics.

The Zacks Rank #1 stock also belongs to the Chemical – Diversified industry. Its Value, Growth and Momentum Scores are A, A and D, respectively. The shares are up 32.6% this year. However, at 7.24X 2022 earnings, they trade rather cheap.

Chemours beat third quarter revenue expectations by 28.3% on revenue that beat by 2.5% as both volumes and pricing increased double-digits from the year-ago quarter. The sequential comparison reveals customer production constraints, raw material unavailability and typical seasonal factors that impacted volumes, but were however offset by stronger pricing. Plant fixed costs are also increasing as production is ramped up to meet the strong demand.

The results prompted analysts to raise their 2022 estimates by 10.0% with revenue and earnings for the year now expected to grow 6.4% and 8.2%, respectively. For the long term, analysts expect Chemours to grow 34.8%.

Chemours pays a dividend that yields 3.15%.

Equinor ASA EQNR

Equinor is one of the premier integrated energy companies in the world, with operations spreading across 30 countries. The second largest natural gas supplier in Europe and one of the largest sellers of crude worldwide intends to align its operations with the Paris Climate Agreement. So it is investing actively in renewable energy projects, while reducing the carbon footprint of its energy business with the stated goal of a 50% reduction across its worldwide operations by 2050.

The Zacks Rank #1 stock belongs to the Alternative Energy – Other industry (Top 37%). It has Value, Growth and Momentum Scores of A, A and B, respectively. Trading at 7.13X 2022 earnings, the shares are undervalued. And that’s despite the 56.6% increase in EQNR share prices year to date.

In the last quarter, Equinor’s earnings beat the Zacks Consensus Estimate by 7.6%. The results were the result of strong pricing in the face of economic growth across markets and increasing energy demand, especially in Europe.

The estimate for Equnior’s 2022 earnings is increasing steadily. It is up 42.4% in the last 90 days and 2.7% in the last 30 days. The lone analyst providing estimates currently expects revenue and earnings growth of 7.4% and 11.7%, respectively, coming on top of 154.8% revenue growth and 1,048.2% earnings growth this year. In the long term, Equinor is expected to grow 49.6%.

Its dividend yields 2.11%.

Year-to-Date Price Performance

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