Since the Great Recession ended in 2009, growth stocks have left value stocks eating their dust. Persistently low lending rates, coupled with ongoing quantitative easing measures from the nation's central bank, have created an ideal environment for fast-growing stocks to thrive.
But don't discount value stocks. Over the very long-term -- a 90-year stretch between 1926 and 2015 -- value stocks actually outperformed growth stocks, based on annual average return (17% vs. 12.6%), according to a Bank of America/Merrill Lynch report. Value stocks also have a knack for outperforming during the early stages of an economic recovery, which is where we find ourselves now.
Even with the market a stone's throw from an all-time high, value stocks can help investors build wealth. The following value stock trio offers the potential to make you a lot richer in August, and well beyond.
For roughly two decades, pharmaceutical stock AstraZeneca (AZN 0.19%) was a chronic underperformer in investors' portfolios. The perils of the patent cliff (i.e., the finite sales exclusivity period of brand-name drugs) and tough competition in key therapeutic indications had the U.K.-based drugmakers' stock running in place. However, the combination of internal innovation and inorganic growth now has AstraZeneca firing on all cylinders.
AstraZeneca's two biggest internal growth drivers have been its oncology and cardiovascular therapies. Specifically, a trio of blockbuster cancer drugs (Tagrisso, Imfinzi, and Lynparza) have been consistently growing by a double-digit percentage, while blockbuster type 2 diabetes treatment Farxiga delivered 53% constant-currency sales growth through the first-half of 2021. These four therapies give AstraZeneca a real shot at maintaining sustainable double-digit sales growth through mid-decade, if not beyond.
It's also going to benefit immensely from the recently closed acquisition of specialty drugmaker Alexion Pharmaceuticals. Alexion's drug portfolio targets ultra-rare diseases, which comes with its own set of risk and reward. On one hand, not all clinical trials targeting rare diseases will prove successful. On the other hand, successful rare-disease drugs face virtually no competition and deal with little, if any, pushback on high list prices from insurance companies.
What's more, Alexion Pharmaceuticals wisely developed a next-generation treatment to its blockbuster therapy Soliris, which was bringing in around $4 billion annually at its peak. This new drug, Ultomiris, is administered less frequently, and over time should replace Soliris in most, if not all, of its indications. It effectively means AstraZeneca's cash flow from Alexion is secure for probably another decade.
The bottom line is AstraZeneca is both a growth and value stock. Based on its newly updated guidance following the closure of the Alexion deal, shares of AstraZeneca can be scooped up for an estimated 11 times estimated earnings per share in 2021. Considering its sustainable double-digit sales growth, this is a huge bargain for a highly profitable name in the healthcare space.
Another value stock with the tools to make you richer in August and well beyond is gold-mining company Yamana Gold (AUY -0.35%).
As a whole, gold stocks were a bit too overzealous on the expansion front during the early portion of the previous decade. As gold prices hit new nominal highs, mining companies bit off more than they could chew on the expansion and/or acquisition front. As a result, gold miners have spent the better part of the past five years improving their balance sheets and focusing on key projects, with Yamana being a perfect example.
Yamana Gold's latest operating results, released last week, demonstrate the progress it's made in terms of production. Both the company's flagship Canadian Malartic mine (owned in a 50/50 share with Agnico Eagle Mines) and Jacobina mine hit all-time gold production highs in the second quarter. Expansion at Canadian Malartic, and the commercial scaling of Cerro Moro, should allow Yamana to produce 1 million gold equivalent ounces annually for the foreseeable future.
The beauty of this steady increase in output and higher realized average selling price is that Yamana has been able to consistently chip away at its debt. Once carrying around $1.7 billion in net debt, Yamana now has only $516 million in net debt, as of the end of June. This boost in financial flexibility has allowed the company to raise its dividend and push its yield to a market-topping 2.7%.
Additionally, don't overlook the positive tailwinds in the sails for physical gold. Historically low bond yields in the near-term, coupled with the prospect of rising inflation over the longer-run, makes physical gold an attractive store of value.
From my personal experience in following the gold-mining industry for more than a decade, a cash flow multiple of 10 represents a fair valuation. Investors can gobble up shares of Yamana Gold right now for just over 5 times projected cash flow in 2021. That's a deal.
A third value stock that can make you richer in August and for many years to come is auto stock General Motors (GM -1.31%).
Historically, auto stocks trade at a perceived discount to the broader market (i.e., high-single-digit price-to-earnings ratios). This has to do with the highly cyclical nature of producing and selling autos, as well as the sizable debt loads that automakers typically carry on their books. However, General Motors looks to have a surefire opportunity on its doorstep to sustainably increase sales and profitability.
The unquestioned catalyst for GM is the electrification of automobiles. In an effort to fight climate change, most developed countries are pushing automakers toward electric or other alternative-energy lineups. General Motors plans to spend a combined $35 billion by the midpoint of the decade on electric vehicles (EV), battery research and development, and autonomous-driving technology. The expectation is for GM to launch 30 new EVs globally by 2025, with an electric-only lineup by 2035.
And if you think the opportunity for GM in the U.S. is sizable, take a closer look at its potential market in China. In less than 15 years, the Society of Automotive Engineers of China anticipates that half of all vehicles sold will be powered by alternative energy -- virtually all of which will be EVs. For some context, the annual auto opportunity in China is north of 20 million vehicles, counting passenger and commercial buyers. We could be talking about 10 million to 15 million EVs annually being sold in China by 2035. Since GM is on track to sell approximately 1.5 million vehicles in China this year, it has well-established brands and infrastructure in place to become a key player in China's EV market.
Despite its high debt load, I'm excited for the future of GM and believe its forward price-to-earnings ratio of 8 is simply too low considering the opportunity that lies ahead.