Did you know that averaging a 10% return on your investments over seven years would be nearly enough to double your money? That may not be an easy task on its own, but when you invest in stocks that have the potential to rise in value plus pay a dividend, it's not as big a mountain to climb. And if you buy low, you don't need to take on excessive risk with your money to earn those types of returns.
If you've got $5,000 that you can afford to invest in the stock market, two value stocks to consider right now are CVS Health (CVS +2.40%) and Kraft Heinz (KHC +0.65%). They pay relatively high yields and can help your portfolio realize significant returns over the not-too-distant future.
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1. CVS Health
Retail pharmacy company CVS Health may seem like a value trap, consistently trading at a low earnings multiple (currently 16, or 11 on a forward basis), but the stock has a lot to offer investors. Its acquisition of health insurance provider Aetna in 2018 allowed the business to become broader and diversify its offerings, while also making it easier for customers to access care.
One way CVS is doing more is by transforming 1,500 of its stores into HealthHubs which will offer a variety of services, including wellness rooms (which can be for nutritional seminars and other group events). The Hubs also have personalized support programs that help people manage chronic conditions like diabetes. CVS now also offers telehealth visits and delivery services.
Many investors may be quick to write off the stock as doomed to be destroyed by tech giant Amazon and its expanding presence in healthcare (the latest rumor is that the company wants to open physical locations). But CVS is adapting and offering value-added services that differentiate its pharmacies. People still value their local pharmacy, and CVS's recent results support that notion.
When the company released its latest results Aug. 4, sales of $72.6 billion for the period ending June 30 came in well above analyst expectations of $70.3 billion. Adjusted per-share earnings of $2.42 were also well above the $2.06 that Wall Street was looking for.
Same-store sales were up an impressive 12.3% when compared with the same quarter last year. CVS definitely benefited from COVID-19 traffic, administering 17 million vaccines during the period. And with booster shots on the way, that trend could continue into future quarters.
CVS projects that for 2021, its diluted earnings per share will come in between $6.35 and $6.45, which, at the low end, would be 16% higher than the $5.46 that it reported in 2020.As it continues revamping its stores, its numbers could look even better next year.
In addition to some promising growth, the healthcare stock also yields 2.3% -- above the S&P 500 average of just 1.3%. CVS isn't a value trap; it's just a business that hasn't been attracting much hype since the pandemic, and that's a big part of the reason it's still a great value buy today.
2. Kraft Heinz
Kraft Heinz has many popular consumer food brands in its portfolio (Oscar Mayer, Lunchables, Kool-Aid) that can do well whatever happens to the economy in the short term. Its largest customer is Walmart , and there's little doubt that the big-box retailer will remain open even if there are further lockdowns. Kraft is also benefiting from a return to normalcy -- in some areas of its business.
The company noted in its second-quarter results that its foodservice business benefited from an increase in demand, although it was still below pre-pandemic levels. In the U.S. market, which is its largest segment, sales were down 4%; in both Canada and other international markets, however, revenue grew by more than 8% year over year. Although the company won't likely see high growth numbers once things get back to normal, it should still deliver a strong bottom line.
Over the past five years, Kraft has posted an operating profit of about 20% or better. It anticipates that for 2021, its adjusted earnings before interest, taxes, depreciation, and amortization (EBTIDA) will come in higher than 2019's performance, which it believes is a better comparison than last year because of the pandemic. For the period ending June 26, the company's net sales of $6.6 billion were nearly identical to the prior-year period's tally.
Kraft is a stock that can help your portfolio rise in value simply through its dividend. At 4.5%, its payout is remarkably high, and investors won't need much of an increase in the share price to earn 10%-plus returns from this investment. But there could be plenty of upside for the stock given how cheap it is; shares of Kraft currently trade at a modest 13 times future profits -- well below Kellogg and General Mills, which are at multiples of more than 15.
