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2 Top Value Stocks to Buy Right Now

By Will Ebiefung - Apr 20, 2021 at 10:52AM

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Albertsons and Phillip Morris International offer excellent bang for your investment buck.

Savvy shoppers want more for less, and the same is true for investors looking for their next big bet in the stock market. Albertsons (ACI 0.81%) and Phillip Morris International (PM -0.66%) would make top choices because of their dirt-cheap valuations and resilient business strategies.

Let's dig deeper into the reasons why these two value stocks could boost your portfolio. 

1. Albertsons 

Albertsons is a national grocery chain that focuses on essentials like food retail and pharmacies -- a niche that can help keep its business stable, even in challenging economic conditions. Its relatively low valuation and its pivot to new opportunities such as e-commerce could send shares skyrocketing. 

U.S. currency

Image source: Getty Images.

Albertsons is a relative newcomer to the stock market, going public in mid-2020 with a valuation of around $9.3 billion. The company's market cap has since declined to $8.8 billion, giving it a forward price-to-earnings (P/E) multiple of just nine compared to its rivals Kroger and Walmart, which trade for P/E ratios of 14 and 26, respectively. Albertsons' valuation looks low in comparison, considering its solid operating performance. Albertsons does pay a $0.10 per share quarterly dividend, but it has only been a public company for three quarters so it's too soon to determine its dividend yield. Its payout ratio is only 10.9%, so there is plenty of free cash flow to expand the dividend going forward.

Third-quarter revenue grew 9% year over year to $15.4 billion while net income increased 126% to $124 million. Digital sales drove much of the top-line growth -- expanding at an impressive 225% in the period due to ongoing tailwinds from the coronavirus pandemic. 

Management hasn't revealed the size of Albertsons' online business, so it is likely still small. But CEO Vivek Sankaran is confident about the opportunity. He believes digital shopping behaviors adopted during the pandemic will continue after the crisis is over. The company plans to invest $300 million to accelerate its digital offerings with new features like zero-touch pay and compatibility with the SNAP food assistance program. 

2. Phillip Morris 

With a forward price-to-earnings (P/E) multiple of 15, Phillip Morris is dirt cheap compared to the S&P 500 average of 42. The company's traditional cigarette business is a cash cow that helps it maintain its large dividend that yields 5.3%. But its biggest edge comes from a push into reduced-risk tobacco products, which can help power the next leg of long-term growth.

Phillip Morris trades at a higher multiple than its U.S. partner, Altria Group, which reports a forward P/E ratio of just 11. But the international tobacco giant deserves a premium because of its focus on commercializing heated tobacco technologies (HTU) like IQOS (a system that releases nicotine without combustion to reduce the production of harmful chemicals). IQOS represents 26% of Phillip Morris' revenue ($6.8 billion), while Altria, which has commercialization rights in the U.S., is just beginning to roll out the product. 

Last year, the FDA authorized IQOS 2 and 3 for sale in the U.S., and Phillip Morris could earn substantial licensing revenue from Altria if the product proves popular with consumers. 

Management expects net revenue to grow up to 7% in 2021 ($3.07 billion) and adjusted EPS growth of up to 11% to $5.75. The projection assumes a gradual easing of some pandemic-related headwinds and HTU shipment volume of 90 billion to 100 billion units compared to 76 billion units in 2020. 

Betting on value 

With the stock market soaring to sky-high valuations, this is a great time to bet on value stocks. Albertsons and Phillip Morris are great picks because they boast rock-bottom valuations and catalysts for success as they pivot to e-commerce and reduced-risk tobacco products, respectively.

Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Philip Morris International Inc. Stock Quote
Philip Morris International Inc.
$100.50 (-0.66%) $0.67
Albertsons Companies, Inc. Stock Quote
Albertsons Companies, Inc.
$28.70 (0.81%) $0.23

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