Build a Balanced Portfolio With 4 Top Value Stocks as Markets Surge

In This Article:

Key Takeaways

  • StoneCo Ltd. Skechers U.S.A., Inc., Pfizer Inc. and General Motors Company stocks are strong value stocks to buy right now.

  • Value stocks have a low price-to-cash-flow ratio, which measures the stock share price relative to the company's cash flow.

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The U.S. stock market continued its upward momentum on Monday, reaching fresh highs amid optimism spurred by the recent presidential election and favorable economic signals. Wall Street's major indexes closed at new highs, building on Friday's record-breaking performance. Investors appear increasingly positive about the prospects of pro-growth fiscal policies under President-elect Donald Trump, while the Federal Reserve's recent interest rate cut has also bolstered market sentiment.

The S&P 500 rose 0.10% to close at 6,001.35, while the Nasdaq Composite jumped 0.06%, ending the session at 19,298.76. Leading the gains, the Dow Jones Industrial Average climbed 0.69% to reach 44,293.13. Bitcoin also hit unprecedented levels, marking a significant milestone in the cryptocurrency market.

As major indexes hit record highs and digital assets reach unprecedented levels, investors might consider balancing their portfolios with value stocks. Typically trading below their intrinsic value, these stocks offer a margin of safety during market fluctuations.

When evaluating value stocks, one of the most effective valuation metrics is the Price to Cash Flow (P/CF) ratio. This metric measures the market price of a stock relative to the cash flow the company generates on a per-share basis. A lower P/CF ratio indicates that the stock is trading at a better value, offering strong cash generation potential relative to its price. Here are four companies — StoneCo Ltd. STNE, Skechers U.S.A., Inc. SKX, Pfizer Inc. PFE and General Motors Company GM — that boast low P/CF ratios, making them strong contenders for value-seeking investors.

Price to Cash Flow Reveals Financial Health

Questions may arise as to why we are considering the P/CF valuation metric when the most widely used metric is Price/Earnings (or P/E). Well, what makes P/CF stand out is that operating cash flow adds back non-cash charges such as depreciation and amortization to net income, truly reflecting the financial health of a company.

Analysts caution that a company’s earnings are subject to accounting estimates and management manipulation. However, cash flow is reliable. It is net cash flow that reveals how much money a company is actually generating and how effectively management is putting the same to use.

A positive cash flow indicates an increase in the company’s liquid assets. This gives the company the means to settle debt, shell out for its expenses, reinvest in its business, endure downturns, and finally pay back its shareholders. Then again, a negative cash flow implies a decline in the company’s liquidity, which in turn lowers its flexibility to support these moves.

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