Value investing is all about buying companies (or shares in companies) for less than their intrinsic value. Sometimes, downward shifts in markets or in individual stocks can present value investors with opportunities. With that in mind, here are three stocks that I’m looking at buying in March with my value investing hat on.
The first stock is Ford (NYSE:F). The company’s debt presents an investment risk that is worth considering. But despite this, I think that there might be an opportunity here from a value investing perspective.
Last year, Ford made just over $9.75bn in operating income. The company currently has a market cap of around $73.1bn. Including the company’s total debt of just under $140bn and $20.5bn in cash means an investment return of around 6% based on last year’s figures.
By itself, I think that’s okay. But the real value I see here comes from Ford’s electric pick-up, which is set to launch well ahead of its rivals. Last year, the top three selling vehicles in the US were all trucks. I think this means that the electric pick-up market will be important and Ford’s head start will prove valuable. That’s why I see Ford as a value stock to consider buying in March.
Another stock on my value radar is Tesco (LSE:TSCO). The company typically produces around £2.5bn in operating income. Right now, it has a market cap of just under £22bn. It has £15.67bn in total debt and £2.4bn in cash. Since Tesco is a fairly stable business, this brings me to expect a return of around 7.5% annually from the underlying business.
Tesco’s current assets don’t cover its current liabilities. For many, this is seen as risky. It means that the company isn’t as financially flexible as it might be. I view it as a strength, though. It means that the company is able to sell the goods it purchases before it has to pay its suppliers for them. I think that Tesco is a stable business trading at a great price. That’s why it makes my list of value stocks to buy in March.
Last on my list of value stocks to buy in March is Wells Fargo (NYSE:WFC). The company currently trades at a price-to-book (P/B) ratio of around 1.25 and has a return on equity of around 12%, which implies a business return of around 9% annually. Wells Fargo has been facing two major headwinds. The first is low interest rates, which pressure margins on its core business. The second is that it has been operating under an asset cap due to its past misdemeanours.
I think that these headwinds might be about to abate, though. I expect US interest rates to rise steadily and I expect Wells Fargo to meet the conditions for its asset cap to be lifted. The risk with this investment comes from how soon either of these might happen. But even if these take longer than anticipated, I think that the business will do well over the long term. This is why it makes my list of value stocks to buy in March.