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2 Value Stocks That Are Beating the Market

By Timothy Green - Apr 8, 2021 at 7:25AM

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Cars and steel have delivered market-beating returns during the pandemic.

Buying pricey growth stocks has been a winning strategy over the past year, although the pandemic's big winners have come under some pressure in recent months. Value stocks haven't been as popular, but it's still been possible to handily beat the market by focusing on buying good companies at beaten-down prices.

Two value stocks that have delivered fantastic returns for investors over the past year are automaker General Motors (GM -3.71%) and steelmaker Nucor (NUE -2.40%). Both stocks could continue to beat the market as the economy recovers from the pandemic.

GM Chart

GM data by YCharts.

General Motors

Investors have warmed to GM's grand plans to become a major player in the electric-vehicle (EV) market. Shares of GM have more than tripled over the past year, more than quadrupling the return of the S&P 500. GM stock has even outperformed electric-car pioneer Tesla over the past six months.

GM will launch 30 electric vehicles globally by 2025 and hopes to completely stop selling gas-powered vehicles by 2035. Its upcoming EVs will be built on the company's Ultium battery platform, which will be capable of a range of up to 450 miles.

GM is aiming to deliver more than 1 million electric vehicles by 2025 and expects its electric-vehicle initiative to be profitable from the start. In contrast, Tesla is only profitable thanks to the sale of regulatory credits.

The 2024 GMC Hummer EV.

Image source: GM.

GM will continue to produce healthy profits as it makes this EV transition, assuming the post-pandemic economy doesn't take a turn for the worse. The company produced adjusted earnings per share of $4.90 in 2020 despite the impact of the pandemic and expects to produce adjusted earnings per share (EPS) as high as $5.25 in 2021.

With a stock price around $62, shares of GM currently trade for around 12 times the high end of the company's earnings guidance. The auto business is cyclical, and profits can swing from year to year, so take that low price-to-earnings (P/E) ratio with a grain of salt. But with the market starting to treat GM as an electric-vehicle growth story, multiple expansion and an even higher stock price could be in the cards.

Nucor

Shares of steelmaker Nucor, which specializes in flexible electric arc mills, have rebounded strongly since bottoming out last year. Nucor stock has more than doubled over the past year, beating the S&P 500 by a factor of two.

Nucor's price-to-book value dipped well below 1 as the pandemic took root in the U.S. early last year. The stock wasn't even that cheap during the worst of the financial crisis. That metric has recovered, along with the stock price, although it's still below pre-pandemic levels.

NUE Price to Book Value Chart

NUE Price to Book Value data by YCharts.

Nucor's recent results have been solid. The company has guided for earnings per share between $3.00 and $3.10 for the first quarter of 2021, the highest quarterly earnings in the company's history. Nucor expects its second-quarter results to be even better. Strong steel demand and higher prices are driving up sales across most of the company's end markets.

In the longer term, an infrastructure bill from the Biden administration could boost demand for steel even further. There's no guarantee a bill will make it through Congress, but Nucor doesn't need the legislation to produce record results.

Demand for steel ebbs and flows, so don't expect straight-line earnings growth from Nucor. Demand downturns are inevitable, as are dips in Nucor's bottom line. But for now, Nucor is well-positioned to take advantage of a strong demand environment. The stock could continue to outperform the market if the company can keep producing solid results.

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Stocks Mentioned

General Motors Company Stock Quote
General Motors Company
GM
$34.78 (-3.71%) $-1.34
Nucor Corporation Stock Quote
Nucor Corporation
NUE
$117.81 (-2.40%) $-2.90

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

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