The stock market appears to be hitting a new all-time high almost daily. This is causing some concern that it might be a bit overvalued after a big ramp-up over the past year or so. However, there always seem to be some hidden gems for investors keen to go digging.
Three value stocks that our contributors have discovered are industrial juggernaut 3M (NYSE: MMM), energy intermediary company Crestwood Equity Partners (NYSE: CEQP)and renewable energy giant Brookfield Renewable Corporation (NYSE: BEPC). Here’s why they believe they ‘are so cheap that value investors won’t want to miss this opportunity.
A very bad press
Reuben Gregg Brewer (3M): In a recent article, The Wall Street Journal highlighted the progress of a lawsuit over 3M earplugs sold to the US military. Users say they were flawed, while the industrial giant says they were not. The case would be costly to lose, and it’s just one of two big combinations 3M faces today. This helps explain why the 3% dividend yield is near the high end of its historical range. This suggests that the stock is relatively inexpensive today.
Last year’s stock rally reduced the value proposition, but that shouldn’t stop investors from jumping on this Dividend King with more than six decades of annual hikes under its belt. To be fair, if you look at the sales price, profit price, cash flow price, and book value, the impression is that 3M’s price is reasonable or slightly cheap. But it’s actually extremely attractive considering the quality of the business and its long-term success. Note that over the past decade, the annualized increase in dividends has exceeded 10%, more than three times the historical rate of inflation. For dividend investors, this kind of growth is worth picking up at a fair or slightly cheap price.
As for the lawsuits, 3M is an investment grade listed company with a market capitalization of over $ 100 billion. He should be able to handle the financial impacts here even if there is a negative outcome.
So cheap it takes action
Matt DiLallo (Crestwood Equity Partners): The unit price of the master limited partnership (MLP) Crestwood Equity Partners is down more than 10% since the start of 2020. This slump comes even as the mid-sized energy company increased profits by 10% last year despite all the turmoil in the oil market. This allowed the company to generate enough cash to cover its high-yield distribution in half and fund its expansion plans.
With improving oil and gas prices this year, Crestwood Equity expects further growth in 2021. MLP expects to generate between $ 575 million and $ 625 million in Adjusted EBITDA in 2021, an increase of more by 3% at mid-point from 2020 level. It also expects to generate between $ 335 million and $ 385 million in free cash flow this year, roughly stable with 2020 at mid-point. That’s enough money to cover its current 9.2% return distribution by two and fully fund its capital spending with $ 130 million to $ 180 million remaining.
These prospects suggest that Crestwood is trading at a cheap price. Considering its current enterprise value (EV) of $ 4.2 billion, it is trading at seven times its EV / EBITDA in the middle of its forecast. Meanwhile, with a market cap of $ 1.7 billion, it’s trading at less than five times its free cash flow.
Crestwood is so cheap that the company recently agreed to buy back 11.5 million of its joint units from a former strategic investor for $ 268 million. This will reduce its number of Exceptional Units, making it even cheaper per unit. Meanwhile, the company aims to use some of its excess cash to buy back up to $ 175 million in additional units, a sign it believes its units are trading at a very low price. These buyouts make Crestwood an opportunity that value investors won’t want to pass up.
An attractive bet in a fast-growing industry
Neha Chamaria (Brookfield Renewable Corporation): Shares of Brookfield Renewable Corporation exploded right after the company was formed last year as a corporate equivalent of Brookfield Renewable Partners (NYSE: BEP) offer investors the ability to own the same business and receive the same dividend as the same business without having to face the tax implications of owning shares in a master limited partnership. Parent Brookfield Asset Management (NYSE: BAM) even made a secondary offer in February to take advantage of the surge in shares of Brookfield Renewable Corporation.
It is not surprising that the profit reservation began soon after, as the market clearly wanted to see Brookfield Renewable Corporation’s share price normalize with that of Brookfield Renewable Partners. With the stock losing almost 20% in value over the past three months and now trading at around nine times cash flow, this is an opportunity for any investor looking to bet on the history of growth in stocks. renewable energies.
2020 was a banner year for Brookfield Renewable as its funds from operations (FFO) increased by 6%, encouraging management to increase the distribution (dividend) by 5%. The company is a solid bet on renewable energies for several reasons. First, it is a pure-play renewable energy company with the backing of a strong parent company. Second, it is one of the most diverse companies in the industry and aims to aggressively expand into solar in the coming years while maintaining exposure to hydropower, wind power, and solar storage. ‘energy. Third, management is targeting an FFO per unit of 10% or more through 2025, which should support higher dividends and increase returns for shareholders. The outlook is good, making Brookfield Renewable Corporation an attractive stock for long-term investors.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.