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3 Value Stocks for 2014

By Nicole Seghetti – Feb 12, 2014 at 5:34PM

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IBM, Apple, and Allstate: One Fool's take on three great value stocks for 2014.

If you're looking for great value stocks for 2014, you aren't alone. Investors salivate over attractively priced stocks. Here are three value stocks for 2014 that exhibit price-to-earnings ratios below their five-year averages, indicating huge upside potential for their share prices.

IBM (IBM 1.65%) continues its business transformation by investing in higher-growth areas like analytics, cloud computing, big data, social, and mobile, and divesting assets like PCs and printers. This transformation and IBM's cost-cutting efforts have significantly increased profitability over time, with net income increasing to $16.5 billion in 2013 from $10.4 billion in 2007. IBM's continued business transformation to higher-profit sources and its strong cost-control efforts will likely further improve profitability levels.

Over the past three years, IBM's revenue has remained flat, but its earnings have averaged 9% annually. At current prices, the market has yet to reward IBM for this profitability improvement. The company's recent P/E ratio has been around 12, while its five-year average P/E is just over 13. But its forward-looking P/E, based on next year's earnings, is less than nine. The company also offers a 2.1% dividend yield.

Apple (AAPL 4.86%) boasts an iconic brand, a stellar balance sheet, and a loyal customer base. While Apple maintains an impressive position in growing categories such as smartphones and tablets, the company's market share declined in 2013. Competitive threats have emerged from well-known players such as Samsung and, more recently, from competition in emerging markets from Asian vendors. Going forward, Apple must increasingly rely on innovative new categories and products like wearables and TVs, as well as alliances like its recent deal with China Mobile, to reignite revenue growth and improve profitability.

Over the past three years, Apple's revenue has averaged annual growth of 27%, while earnings have also increased an average of 27% per year. Apple's recent P/E ratio has been around 13, while its five-year average P/E is just over 15. But its forward-looking P/E is roughly 10. The company also offers a 2.3% dividend yield. Apple definitely looks like one of the best value stocks for 2014.

Allstate (ALL 0.39%), one of the largest publicly traded property and casualty insurers in the U.S., offers auto and homeowners insurance, as well as life insurance and annuities. Its product suite allows Allstate to build a comprehensive portfolio of products with a customer -- an advantage over its more auto-centric peers. Bundling of insurance products can also improve customer retention. To combat catastrophe losses, which are a main driver of Allstate's earnings volatility, Allstate is reducing its vulnerability to riskier geographic markets by raising premiums and reducing the number of in-force policies.

Over the past three years, Allstate's revenue has averaged annual growth of 3%, while earnings have averaged 35% growth. Allstate's recent P/E ratio has been around 11, while its five-year average P/E is 15.7. But its forward-looking P/E is roughly nine. That suggests an attractive price to pay for this value stock. The company also pays a 1.9% dividend yield. Keep your eye on Allstate. It's likely to be one of the best value stocks for 2014.

Looking for more great value stocks? Check out an article by fellow Fool contributor Jason Hall, who recently called out his top value stocks for 2014.

Nicole Seghetti owns shares of Apple. Follow her on Twitter @NicoleSeghetti. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple, China Mobile, and International Business Machines. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Apple Stock Quote
Apple
AAPL
$148.03 (4.86%) $6.86
International Business Machines Stock Quote
International Business Machines
IBM
$148.90 (1.65%) $2.41
Allstate Stock Quote
Allstate
ALL
$133.90 (0.39%) $0.52
China Mobile Stock Quote
China Mobile
CHL

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