The S&P 500 is near an all-time high, but not all stocks are performing quite so well. If you look closely, there are still some excellent bargains in the stock market, especially if you look beyond the high-growth tech stocks making most of the headlines. With that in mind, here are three value investments you can make right now. I own all three in my own portfolio and am quite confident they'll be stellar performers for patient investors.
3 Value stocks that could outperform the market through 2030
Without further delay, here are three value stocks that could outperform the market for the remainder of the decade, and some reasons why.
1. Starbucks
Coffee giant Starbucks (SBUX +0.08%) has had a rough 2024. The company reported a surprising decline in same-store sales in the first quarter, as well as a 6% decline in customer traffic, and the stock took a nosedive. Even after a bit of a rebound, Starbucks trades for more than 25% below its 52-week high.
NASDAQ: SBUX
Key Data Points
Despite the poor stock performance, it's important to realize that the issues are due to temporary headwinds, such as pressure on consumer discretionary spending. Plus, Starbucks has been doing an even better job than planned when it comes to making supply chains more efficient, expecting $4 billion in savings over the next four years.
2. Realty Income
Realty Income (O +0.21%) is one of the leading real estate investment trusts, or REITs. If you aren't familiar with its business, Realty Income owns more than 15,400 properties in the U.S. and Europe and is designed to produce predictable and growing rental income over time.
The stock is down by about 35% from its all-time high (reached just before the COVID-19 pandemic), but it's important to realize the business is doing fine. REITs are highly sensitive to rising interest rates, and Realty Income -- which has a strong history of market-beating returns for the past three decades -- could be a big winner as rates normalize. Realty Income is one of the largest investments in my own stock portfolio, and one that I plan to hold for decades to come.
3. Vanguard Small Cap Value ETF
Two of the most undervalued groups of stocks right now are small caps and value stocks, and the Vanguard Small Cap Value ETF (VBR +1.08%) lets you invest in both of them, without too much exposure to any single company.
Small caps are trading for their lowest price-to-book valuation compared to the S&P 500 in more than 25 years. And over the past decade, growth stocks as a group have outperformed value stocks by a staggering 168 percentage points.
There are some solid arguments in favor of these types of stocks right now. For one thing, the last time the small cap valuation gap was this wide, they ended up outperforming the S&P 500 for more than a decade. And if interest rates start to fall, they could make borrowing costs lower (value stocks are more likely to use debt than growth) and could also cause consumer spending activity to accelerate.
Remember the goal of value investing
As a final thought, keep in mind that value investing is a long-term practice. I have absolutely no idea what these stocks will do over the next few months or for the rest of 2024, and neither does anyone else. But these are three excellent investments that look like excellent values for long-term investors right now, and I'm quite confident that investors with a time horizon of five years or more will be glad they bought at the current levels.
