The major market benchmarks are hovering around all-time highs despite recent volatility. Some might argue that it's hard to find value stocks in this environment. But our Foolish investors have found three stocks worth a closer look. They are in different industries and have some risks, but the underlying businesses appear strong. Here's why Hanesbrands Inc. (HBI 0.64%), VEREIT, Inc. (VER), and Horizon Pharma plc (HZNP) are value stocks to buy right now.
Be patient with this boring stock
Tim Green (Hanesbrands): There are quite a few reasons to be pessimistic about Hanesbrands' prospects, a basic apparel manufacturer known for brands including Hanes, Champion, and Playtex. The company is heavily dependent on brick-and-mortar retailers at a time when online retail has reached critical mass. In 2017, Walmart and Target accounted for 18% and 13%, respectively, of Hanesbrands' total sales. On top of that revenue concentration, the company's balance sheet is far from stellar, with about $3.7 billion of long-term debt.
Image source: Getty Images.
But the stock trades for peanuts, and the company's performance has been perfectly acceptable. Based on the midpoint of the Hanesbrands' adjusted earnings guidance, the stock trades for just 10.5 times earnings. The company expects store closures to have a negative impact on sales next year, but it sees organic revenue growth driven by online sales, growth in the Champion brand, and rising international sales. Organic sales growth of about 1% in 2018, adjusted for currency, is expected, with an additional revenue contribution from the recently announced acquisitions of Alternative Apparel and Bras N Things.
Hanesbrands is about as boring as it gets when it comes to apparel stocks, but I think that's a good thing. Much of what the company sells isn't subject to changing tastes and consumer fads, although it's still exposed to the activewear market through its Champion brand. If the company can keep things steady and successfully navigate the ongoing retail reckoning, I think the stock will turn out to be a solid investment for patient value investors.
Legal woes spell opportunity
Reuben Gregg Brewer (VEREIT): The heavy lifting has been done at VEREIT, a net lease real estate investment trust (REIT) that lived through an accounting scandal a few years back. That accounting issue was the climax of an aggressive growth-at-any-cost phase, and led to an overhaul of the management team, a re-evaluation of the REIT's strategic direction, and the suspension of the dividend.
Industry veteran Glenn Rufrano was brought in to right the ship. He laid out plans to repair trust, including selling undesirable assets that built up during the growth spree, better diversifying the portfolio, attaining an investment-grade credit rating, and restoring VEREIT's dividend. He and his team have successfully executed on each point of the plan. The next goal is to shift from a net seller of assets to a net buyer, a transition that's likely to take hold this year.
VEREIT, however, still has to deal with lawsuits over the accounting scandal. Since the former CFO was convicted of accounting fraud in mid-2017, the prospects don't look good here. However, that's priced into the shares, which trade with a robust 8% yield. That's much higher than peers like W.P. Carey and Realty Income, which have yields of 6.6% and 5.2%, respectively.
VER Dividend Yield (TTM) data by YCharts.
Looking at valuation in a different way, VEREIT's price-to-forward-adjusted-funds-from-operations ratio, using management's 2018 guidance, is a little under 10. W.P. Carey and Realty Income come in around 11.5 and nearly 16, respectively. Legal uncertainties at VEREIT have left it in the bargain bin, but at this point they have little to do with the fundamentals of this large and now well-run net lease REIT. If you can handle the headline risk, VEREIT looks like a good -- and high-yielding -- value today.
The tide is turning
George Budwell (Horizon Pharma plc): At eight times forward earnings, Horizon Pharma is one of the cheapest stocks in the healthcare sector right now, and perhaps one of the best bargains as well.
Why are Horizon's shares so cheap? There are two reasons. First, the company is still working through the blowback from payers over its primary care medicines. Second, the steady stream of bad news emanating from other top specialty drugmakers like Allergan, Teva Pharmaceutical Industries Ltd., Shire plc., and Valeant Pharmaceuticals has depressed valuations across this subsector in general.
The good news is that Horizon has taken definitive steps to considerably lower the impact from its troubled primary medicine segment. Roughly two years ago, for instance, Horizon began its ongoing shift to the safer shores of orphan products. As a result, its overall product portfolio is now tilted heavily toward less controversial drugs, such as the gout treatment Krystexxa and the kidney disease drug Procysbi.
That's a particularly astute move because the high prices typically associated with orphan drugs are generally accepted by payers because of their small target markets. Moreover, drugs for rare diseases also tend to come with extended periods of exclusivity.
Although it's unclear how much longer the market will continue to punish Horizon for the reasons mentioned above, the tide should eventually turn. And when it does, Horizon is primed to rebound, thanks to its strong lineup of orphan drug products and favorable growth prospects.