3 Value Stocks for 2014

You're smart to seek out value stocks for your portfolio, as finding a wonderful company isn't enough. For best investing results, demand high-quality companies and attractive prices. Indeed, data from the folks at Ibbotson has shown value stocks outperforming growth stocks handily between 1970 and 2012. With that in mind, here are three value stocks for 2014 to consider.

IBM (NYSE: IBM  ) is a value stock for 2014, with a forward P/E ratio of about 9.7, below its five-year average of 12.5. Most would agree that it's a great company, but there are a few more doubters after IBM's third-quarter results, which featured about $1 billion less revenue than was expected. (Earnings did top expectations, though.) IBM has been around so long that the tech titan has had to reinvent itself numerous times. It's recently been shifting focus from hardware sales to software and services, which can deliver a fatter profit margin. It's also involved in cloud computing. Doubters might want to note that much of its third-quarter disappointment was due to temporary factors, such as currency exchange rates and delayed orders from China. Keep in mind, too, that the world's most famous value investor, Warren Buffett, owns more than 6% of the company. IBM stock offers a dividend yield of about 2.1%.

Textainer Group Holdings (NYSE: TGH  ) is also one of my value stocks for 2014, with a five-year average revenue growth rate of 15% and a forward P/E ratio of 9.4. Its stock is up almost 28% over the past year and has averaged annual growth of 43% over the past five. What does the company do? Well, it's the world's largest  intermodal container leasing company (based on fleet size), with competitive advantages such as efficiency. It has more than 2 million containers that it leases to some 400 shipping lines and more than 1,100 customers worldwide who buy containers. In Textainer Group's third quarter, it posted revenue up 8.4% from year-ago levels, lease rental income up 21%, and $827 million invested in new and used containers. Some of the 2014 value stock's recent earnings haven't met expectations, though, in part due to dilution. Still, as the world's economy picks up, so should shipping. Textainer Group offers a 4.9% dividend yield, which has roughly doubled over the past five years.

Trinity Industries (NYSE: TRN  ) is another of my value stocks for 2014, and another company poised to profit from a recovering economy and from growing interest in railroad transportation, as it makes railcars, among other products. With a forward P/E ratio of about nine, below its five-year average of nearly 11, it's attractively valued. It yields just 1.1%, but that dividend has been raised by double-digit percentages in recent years -- and fully 36% in 2013. American commerce relies heavily on the railroad industry, which offers much more cost-effective transportation than trucking, and the energy industry is increasingly using rails, as well. Last year, some 234,000 freight cars transported 167 million barrels of oil, for example. Bulls like Trinity's diversification, as it is also involved in railcar leasing, barge manufacturing, construction services, and more. Railcars are its bread and butter, but it's also a major wind tower maker in the alternative energy arena. In its third quarter, Trinity Industries posted record earnings, up 58% from year-ago levels, with revenue up 22% and a railcar order backlog of more than $5 billion -- which exceeds this 2014 value stock's market capitalization!

As you seek value stocks in your 2014 investing and beyond, remember that the concept of value can be more complex than it appears, and it's best to look beyond simple P/E ratios. Still, as you develop your investing chops, P/Es are a good place to start in order to get a very rough sense of valuation.

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9/27/2016 10:04 AM
IBM $156.27 Up +2.29 +1.49%
IBM CAPS Rating: ****
TGH $7.54 Up +0.01 +0.13%
Textainer Group CAPS Rating: *****
TRN $23.93 Up +0.10 +0.42%
Trinity Industries CAPS Rating: *****