Value stocks have historically outperformed most other asset classes. During the latest bear market, for instance, investors leaned heavily into value stocks as a hedge against inflation and a weakening global economy.
With the tide seemingly turning in the market, however, growth stocks will probably start to outperform value-oriented assets over the next few years. Nonetheless, some value stocks are still worth buying as this shift in sentiment unfolds. Here is a brief overview of two top-shelf value stocks that stand out as superb buys in this dynamic market.
Image source: Getty Images.
Berkshire Hathaway: A diversified powerhouse
Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) is a diversified holding company that operates a wide range of businesses in different industries. The company is led by Warren Buffett, one of the most successful and respected investors in history.
The company owns and controls many well-known companies, such as Geico, BNSF Railway, Berkshire Hathaway Energy, Dairy Queen, and Duracell. These businesses provide stable and consistent earnings for the holding company.
Berkshire Hathaway also invests in a large number of publicly traded companies, such as Apple, Bank of America, Coca-Cola, American Express, and T-Mobile. These investments give the holding company exposure to some of the most profitable and dominant companies in the world.
Berkshire Hathaway has a long history of delivering market-beating returns to its shareholders. Since 1965, its stock has generated compound annual returns of 19.8% per year, compared to 9.9% for the S&P 500. Now, the holding company's stock performance did lag behind the market during the previous bull market, but it has regained its edge over the past year.
With the challenges posed by rising interest rates and a possible economic slowdown, Berkshire's resilient portfolio of stocks and businesses should continue to drive market-beating returns -- especially with its shares trading at a mere 2.6 times trailing sales.
British American Tobacco: A resilient tobacco giant
British American Tobacco is one of the largest tobacco companies in the world, with a presence in more than 180 countries and a portfolio of popular brands such as Dunhill, Lucky Strike, Pall Mall, Kent, Rothmans, and Camel. The company also has a growing presence in the reduced-risk products segment, which includes e-cigarettes, heated tobacco products, and oral nicotine products.
British American Tobacco has been able to maintain its profitability and cash flow despite the challenges facing the tobacco industry, such as declining smoking rates, regulatory pressures, and increased competition. Wall Street analysts, in fact, expect the tobacco giant to grow its earnings per share by double digits over the next few years, thanks heavily to its opportunity in the rapidly growing noncombustible product category.
Perhaps most importantly, though, British American Tobacco offers an extremely generous dividend. At current levels, the company's stock pays a mouthwatering 8.47% yield on an annualized basis. This noteworthy yield is also well supported by the company's earnings, as evinced by its fairly reasonable 74.2% trailing-12-month payout ratio. Moreover, its shares are attractively priced at under 7 times projected earnings, which is cheap for a blue chip dividend stock. This favorable mix of yield and attractive price point ought to appeal to dyed-in-the-wool value investors.
