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3 Top Value Stocks to Buy in February

By James Brumley - Updated Feb 7, 2020 at 8:27AM

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Stocks from several different sectors have recently gone on sale at a time when growth stocks are testing their limits.

It has been difficult for value investors of late. Growth companies like Shopify and Tesla have stolen the show on Wall Street, not just by leading the charge into new technologies, but by delivering commanding performances compared to less-explosive companies. Large-cap growth stocks, on average, are up 26% over the past 12 months, versus a much more modest gain of 16% for value names during the same time frame.

For true fans of value investing though, that sort of short-term disparity just doesn't matter. The strength packed into value names can take years to fully manifest. In fact, the lackluster results that value stocks, in general, have produced for investors since early February 2019 have actually created a number of buying opportunities. Here are three that are worth giving a closer look.

1. United Rentals: Benefitting from economic uncertainty

An economic bubble that's seemingly on the verge of popping presents a conundrum for most companies. Investing in growth that isn't in the cards would be a waste of money, but hunkering down for a storm that doesn't materialize means missed opportunities. There are companies that thrive on such uncertainty though, like United Rentals (URI 2.66%).

Photograph of man pressing a "buy" key on computer keyboard.

Image source: Getty Images.

United Rentals rents out a variety of construction and materials-handling equipment, ranging from backhoes to jackhammers to generators. It's an ideal solution for construction companies that need access to equipment right now, but aren't quite ready to commit to the ongoing payments entailed by an outright purchase. The country's fragile, yet persistent, economic growth situation has proven a perfect environment for United Rentals, which hasn't failed to grow its top line or EBITDA in any year since 2016 (and 2016 was a modest blip -- the longer growth trend has been in place since 2013).

There is one feature of this stock that some value investors may not like: United Rentals doesn't pay a dividend. It has instead used the bulk of its profits to acquire smaller rental players within its highly fragmented industry. It's a formula that works, however, letting the company tack on market share. In the meantime, investors who buy now will still only pay for a stock trading at 9.8 times United Rentals' trailing earnings. That's a more than a fair price given its consistent growth.

2. Goldman Sachs: Seeking new revenue growth through e-commerce sellers

Goldman Sachs (GS 3.14%) may still be the most recognizable name on Wall Street, but it's just not the powerhouse it used to be. Even before Lloyd Blankfein stepped down as CEO in late 2018 and handed the reins to David Solomon, the investment bank was battling headwinds like waning trading revenue and a trading scandal that tarnished the company's reputation.

This is one of those companies, however, that you just don't want to bet against. In fact, it's a stalwart of the sort that you generally want to bet on, even at times when doing so feels a bit uncomfortable. That's especially the case now when investors can open new positions while the stock is priced at less than 9 times next fiscal year's projected earnings.

The kicker: Goldman Sachs is reportedly in talks with Amazon to establish a program to make loans to Amazon's third-party merchants. While it remains to be seen what that program would look like -- if it comes to pass at all -- worldwide, Amazon's e-commerce site is actively used by an estimated 3 million sellers.

3. Intel: A bargain because its being underestimated

Finally, add Intel (INTC 3.06%) to your list of value stock prospects worth consideration.

That wasn't a misprint or a typo. Once a company more apt to be categorized as a growth stock, the semiconductor pioneer has been both upstaged at times by competitor Advanced Micro Devices and fallen victim to its own missteps. For example, its plans to launch a mass-market 7-nanometer CPU have been pushed back -- again -- to 2021. In the meantime, its 10-nanometer fabrication effort has run into roadblocks too. The net effect has been a demotion of Intel to value stock status.

The worst-case scenario may already be priced in, however, and then some.

Analysts as a group collectively believe the stock's worth no more than its current price near $65, and rate the company just a little better than a hold given its lackluster growth outlook for the foreseeable future. Deutsche Bank, however, stands out in its suspicion that the company may be underestimating this year's results after it decidedly topped Q4 estimates. Given that the stock trades at a forward P/E of 13, there's certainly not a monumental degree of risk in taking such a bet.

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Stocks Mentioned

The Goldman Sachs Group, Inc. Stock Quote
The Goldman Sachs Group, Inc.
$312.97 (3.14%) $9.53
Intel Corporation Stock Quote
Intel Corporation
$44.40 (3.06%) $1.32
United Rentals, Inc. Stock Quote
United Rentals, Inc.
$290.46 (2.66%) $7.53
Tesla, Inc. Stock Quote
Tesla, Inc.
$761.61 (5.14%) $37.24, Inc. Stock Quote, Inc.
$2,307.37 (4.11%) $91.16
Advanced Micro Devices, Inc. Stock Quote
Advanced Micro Devices, Inc.
$102.47 (8.73%) $8.23
Deutsche Bank Stock Quote
Deutsche Bank
$10.12 (4.54%) $0.44
Shopify Inc. Stock Quote
Shopify Inc.
$372.64 (3.52%) $12.69

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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