2 Dirt-Cheap Value Stocks to Buy in 2022

The Motley Fool
The Motley Fool

Everyone wants more for less, and value stocks can offer that. Many of these mature companies trade at rock-bottom valuations compared to their earnings and growth potential, making them an excellent bang for your buck investment.

Let's explore why Ford Motor Company (NYSE: F) and Philip Morris International (NYSE: PM) fit the bill as two dirt-cheap stocks that could outperform in 2022.

Image source: Ford Motor Company.

1. Ford Motor Company

After soaring 147% in the last 12 months, Ford's bull run is already in full swing. The legacy automaker's electric transformation looks promising because of its strong brands and rock-bottom valuation compared to industry peers.

Investors have assigned massive valuations to electric vehicle (EV) companies like Rivian , which went public in November 2021 and now boasts a market cap of $66 billion despite generating just $1 million in third-quarter revenue. Ford generated revenue of $37.5 billion in the corresponding period and trades for a market cap of just $85 billion. And its price-to-sales (P/S) multiple (which divides market cap by 12-month revenue) is only 0.64 -- a significant discount to the S&P 500 's average P/S of 3.13.

To be fair, most of Ford's revenue comes from internal combustion engine (ICE) vehicles, which don't seem to excite investors nowadays. But its EV business is surging -- boasting some key advantages over more "pure plays" like Rivian.

Analysts at Morgan Stanley expect Ford's EV sales to reach 473,000 in three years (11.5% of total volume). And this surge will be powered by new electric models like the Ford F-150 Lightning, which takes advantage of Ford's F-series brand, America's best-selling pickup line for 43 years. Upstarts like Rivian (also targeting the utility vehicle niche) will struggle to beat Ford's name recognition and consumer loyalty in this segment.

2. Philip Morris International

Tobacco is a favorite industry for value investors willing to trade breakneck growth for stable profits. International tobacco giant Philip Morris fits into this category. And it makes an excellent alternative to rivals in the sector because of its diversified revenue streams and pivot to reduced-risk tobacco products.

Analysts expect the tobacco industry to grow at a compound annual growth rate (CAGR) of just 2.5% annually to 2025. But it is habit-forming, giving tobacco companies excellent pricing power -- often at the expense of their reputations in an increasingly health-conscious society. Philip Morris International aims to reduce the negative stigma by investing in reduced-risk products that mitigate tobacco's dangers while powering growth.

As of September 2021, smoke-free tobacco products (including vaporizers, oral tobacco, and heat-not-burn systems) represent 29% of revenue ($6.7 billion). And Philip Morris plans to bring that share to 50% by 2025. The company is also investing in healthcare through the September acquisition of inhaled medication company Vectura (for $1.45 billion), which could provide useful patents and research and development for Philip Morris's reduced-risk strategy.

With a forward price-to-earnings (P/E) multiple of 14, Philip Morris International trades significantly below the S&P 500's average of 26. While the stock is more expensive than counterpart Altria (P/E ratio of 9.5), which sells tobacco products in the U.S., Philip Morris's premium is well-deserved because of its convincing pivot to reduced-risk tobacco products.

Betting on value

The U.S. economy has bounced back from the worst parts of the ongoing coronavirus pandemic. But there is still uncertainty in financial markets because of a sky-high inflation rate (7% in 2021) and the possibility of rate hikes , which could dampen stocks by making credit more expensive.

In times like these, value stocks like Ford and Philip Morris International can shine because they don't have massive expectations built into their valuations. They also have company-specific catalysts for growth, which could help them outperform their peers.

10 stocks we like better than Ford
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now... and Ford wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of January 10, 2022

Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

Comments / 0

Comments / 0