Value investing is a time-honored tradition -- in fact, some of the most successful investors of all time, like Warren Buffett, Benjamin Graham, and Bill Miller, are primarily known as value investors. Value investors focus on finding stocks that are underappreciated by the broader market and thus underpriced. These stocks are overlooked by other investors for one reason or another, and value investors believe that they will increase in price once the market comes around to them.
While the legendary investors mentioned above have massive portfolios, you don't need a $300 billion portfolio like Buffett's Berkshire Hathaway to get started as a value investor. If you have $5,000 available that's not already committed to paying bills, paying down debt, or boosting an emergency fund, here are three great value stocks trading at bargain valuations to consider. Any one of them can help you start or boost your own value portfolio right now.
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1. Qualcomm
People sometimes think value stocks are limited to sectors like financials or energy. But after this year's market sell-off, plenty of cutting-edge technology companies can be classified as value stocks as well, with semiconductor giant Qualcomm (QCOM 1.04%) standing out as one of the best examples. Qualcomm's chips can be found in devices ranging from Apple's popular iPhones to Samsung's Android phones to Meta Platforms' Oculus Quest 2 VR headsets. Qualcomm is pushing into lucrative new end markets like smart cars and edge computing hardware.
That may not sound like your typical value stock, but after a 33% drawdown year to date, that's exactly where Qualcomm stock finds itself. Qualcomm trades at a value price of just 10 times earnings and 9.5 times forward earnings. Not only are shares of Qualcomm cheaper than the market as a whole, but they are also cheaper than those of some of the largest and most-followed names in the semiconductor space, like Nvidia and Advanced Micro Devices, which trade at 43 and 28.5 times earnings, respectively.
Fears of an economic slowdown have weighed on semiconductor stocks all year. Perhaps the market is not yet convinced that Qualcomm will be successful in entering these new segments -- but this is what creates a value opportunity. Over the long term, we know that the world will need more semiconductors as more devices become digital, and semiconductor stocks like Qualcomm will bounce back from this slump. Adding to Qualcomm's appeal, the stock also pays out a dividend that yields 2.5%. With its cheap valuation and significant growth prospects over the long term, Qualcomm looks like an excellent choice to start building a value portfolio around.
2. Goldman Sachs
Financials are another great place to look for value stocks. While you might not expect the world's most iconic investment bank to fall into the value category, that's exactly where Goldman Sachs (GS -1.71%) finds itself after an 18% decline year to date. The IPO market slowed down in 2022 amid an uncertain economy, which caused Goldman's shares to slump. But trading at just seven times earnings, shares of the $108 billion bank now look like an enticing bargain.
In addition to looking cheap on a price-to-earnings basis, Goldman Sachs also looks attractive from a price-to-book-value perspective. Book value is the sum of a company's assets minus its liabilities. With a price-to-book-value ratio of just 1.04, shares of Goldman Sachs are trading at a level barely above what the company's assets would be worth if they were to be liquidated, making shares even more of a bargain.
Like Qualcomm, Goldman Sachs enhances its appeal with a dividend that currently yields 3.2%. It's also important to note that there is more to Goldman than just investment banking -- the company has multiple revenue streams and engages in global assets (which includes trading and risk management), asset management, consumer banking, and wealth management. Eventually, the IPO market will bounce back, and shares of Goldman Sachs will heat up again, making it a great time to stock up on shares before the market comes around to it.
3. Lithia Motors
Many investors are not yet familiar with Lithia Motors (LAD -2.06%), but the Oregon-based auto retailer has the nation's largest online inventory of cars for sale. While it doesn't get the same attention as peers like CarMax or Carvana, with a rock-bottom valuation of five times earnings, perhaps it should. Lithia trades at a steep discount to the broader market and to these peers. CarMax trades for 14 times earnings, while Carvana is not yet profitable and cannot be valued on a price-to-earnings basis.
Like other stocks across the auto sector, shares of Lithia are down because investors fear a recession will cool demand for vehicles. But trading at five times earnings, Lithia stock is being priced like it is a company in decline when it is actually growing at a rapid rate and can even be viewed as a growth stock. Over the past 10 years, the company grew earnings per share at an incredible 33% compound annual growth rate (CAGR). Looking ahead, Lithia plans to grow revenue to $50 billion (from $22.8 billion in 2021) and earnings per share to $55 to $60 (from $40 in 2021) by 2025, at which point this value stock would be worth considerably more than it is today.
Find the value that others are missing
There is value everywhere in the market today, and it doesn't always come in the form you expect. A cutting-edge semiconductor company like Qualcomm can be a value investment. You can get started on building a value portfolio of your own by dividing $5,000 between these three compelling value opportunities and waiting for the rest of the market to come around to their true worth.
