Top Value Stocks Q2 2022

By Kirsteen Mackay

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Value investing is a type of investing advocated by investor Warren Buffett. Value stocks should be trading for less than their intrinsic or book value.

When identifying value stocks, we look for metrics like a price-to-book value (P/B) below 1 and a price-to-earnings ratio (P/E) below 20. A low PEG ratio and dividend yield add value too.

Stocks trading below their intrinsic value do so for a reason. Many of these stocks have been impacted by COVID-19, or the Russian war, therefore, they carry risk.

In the uncertain backdrop of inflation and tighter monetary policy, investors have been dumping tech and growth stocks in favor of safer options. This bodes well for value stocks, but investors should do their due diligence and understand the business before rushing in to buy shares. 

Here is a selection of stocks we see value in.

Danaos Corporation (NYSE: DAC)

Danaos Corporation (NYSE: DAC) is one of the world's largest independent owners of containerships. Operating in the marine shipping industry, Danaos is a $2bn company with a 2.9% dividend yield operating in the marine shipping industry.

Since COVID-19 has become more manageable, the economy has opened up, and demand for shipping has increased. Nevertheless, many problems remain.

The COVID-19 pandemic upended the shipping industry. Ports and shipping lanes are congested or closed, there's a shortage of containers, and general supply chain disruption continues.

Now, the cost to ship items around the world is at a record high. While this alone should be a temporary problem to overcome, the price of fuel skyrocketing is likely to keep prices elevated. And with the Russian war now wreaking havoc, port bottlenecks endure.

However, DAC stock's financial metrics present an attractive picture when it comes to valuation.

Danaos DAC Stock Financial Metrics

Looking at DAC stock's debt levels, the company has managed to decrease this year-over-year.

In 2018, debt sat at $1.6bn. By 2020, this had reduced to $1.4bn, and in 2021 it reached $1.3bn.

This shows the company has efficiently been decreasing its debt.

Considering Danaos has simultaneously grown revenue and earnings year-over-year, DAC stock looks heavily undervalued with a P/E of 1.4 and P/B of 0.7.

The company recently announced an order for two new 7,100 TEU containerships, which it will receive in 2024.

Risks to investing in Danaos

As the pandemic loosens its grip, shipping rates should begin to come down.

Russia's war may discourage globalization, prompting businesses to relocate their supply chains closer to home.

Plus, there's a high chance the war could lead to a global recession, reducing demand for container shipping from today's level.

Buying undervalued stocks when they're out of favor is never easy, but it's often the best time to pick up bargains.

Avnet, Inc. (NASDAQ: AVT)

Avnet, Inc. (NASDAQ: AVT) creates electronic components to help improve the supply chain and global distribution.

Avnet's extensive product portfolio includes amplifiers, antennas, batteries, circuit connectors, memory chips, processors, resistors, and many more components.

The company has been operating for over 100 years. Therefore, it's very well established and integrated into our globalized supply chain. As tech is still a growing and thriving industry Avnet is unlikely to disappear anytime soon. 

Furthermore, Avnet's financial metrics look attractive.

Avnet AVT Stock Financial Metrics

Before COVID-19 disrupted the world, Avnet displayed consistent revenue of around $19bn. Last year, it returned to this level after dropping to $17bn in 2020.

A PEG of 0.5 shows it has further room to grow, and a P/S of 0.2 represents good value for money. Avnet's net debt is consistent and does not appear to be growing.

Photronics, Inc. (NASDAQ: PLAB)

Photronics, Inc. (NASDAQ: PLAB) manufactures semiconductor photomasks with high precision photographic quartz or glass plates containing microscopic images of electronic circuits.

As the global shift to electrification has sent demand for semiconductors soaring, many stocks in the EV and tech space have become overvalued.

Photronics is one semiconductor stock that looks to be trading below book value.

Photronics PLAB Stock Financial Metrics

This is a company displaying consistent top-line revenue growth and net income. The P/B ratio suggests the stock is trading below book value. Meanwhile, the stock is still off its 52-week high of $20.30. The company's debt to cash position is healthy, too, with $314.2m in cash and debt of $101.77m.

EuroDry Ltd. (NASDAQ: EDRY)

EuroDry Ltd. (EDRY) owns and operates drybulk carriers that transport major bulks like iron ore, coal, and grains and minor bulks such as bauxite, phosphate, and fertilizers. With all these commodities experiencing tight supply and growing demand, EuroDry's services are required. 

The company has a fleet of 10 vessels. During Q4, nine vessels earned an average of $29.1k per day.

Earlier this month, one of these vessels, the Molyvos Luck, entered a new charter contract for 11 to 13 months at a day rate of $25.7k. 

In Q4 2021, EuroDry achieved total net revenues of $22.3m. This led to a diluted EPS of $4.29. For the full fiscal year, EuroDry earned total net revenues of $64.4m and diluted EPS of $11.88.

EuroDry is a relatively new entrant to the market, having only been founded in 2018. However, its financial metrics are encouraging, and the company appears to be making significant strides.

Eurodry EDRY Stock Financial Metrics

EuroDry's earnings growth turned positive in 2021 after a negative year in 2020. Its P/B of 0.7 and P/E of 1.8 indicate the business is undervalued. This is a sign the share price and market have further room to grow. Furthermore, the EDRY share price is up 60% year-to-date.

Canfor Corporation (TSE: CFP)

Canfor Corporation (TSE: CFP) is a forest products company based in Vancouver, British Columbia. It turns virtually 100% of its wood fiber into useful products. This includes solid wood, pulp and paper, and green energy pellets.

Canfor has a $3.4bn market cap, and its financial metrics suggest it's currently undervalued.

Canfor CFP Stock Financial Metrics

Canfor showed excellent growth in 2021 with positive revenue growth and even better earnings. This has allowed cashflows to grow year-over-year by 85.1%. The P/B value is slightly more than 1, but this is to be expected in an inflated market.

Canfor's Q4 earnings report missed analyst estimates, with disruption continuing to hit the industry in the short term. This includes supply chain woes, transportation problems, and a scarcity of fiber supply in Canada. Of course, inflation is adding pressure to the margins too.

However, it's times like these that the best bargains can be snapped up, and for those risk-tolerant investors, CFP stock may prove a lucrative long-term investment.

Spartan Delta Corp (TSE: SDE)

Spartan Delta Corp (TSE: SDE) is a Canadian oil and gas stock. The company is gaining recognition among industry investors after demonstrating impressive production in Q4.

Spartan’s 2021 sales revenue increased by over 500%, from $96m in 2020 to $608m.

Spartan Delta SDE Stock Financial Metrics

Oil and gas stocks can be difficult to value, and it's even more of a stretch to find profitable small-caps. Spartan Delta has experienced exponential growth since 2020 and appears undervalued with a P/E of 2.1 and P/B of 1.

However, it does have a large debt position of $442.36m compared to its cash position of $1.25m.

Nevertheless, Spartan's total asset value exceeds $1.7bn. Therefore in a worst-case scenario, it could clear its debt quite easily.

Spartan acquired Velvet Energy in August and is now reaping the rewards with a 56% increase in average production.

Now, the company is exploring three profitable and growing revenue streams in the form of natural gas, natural gas liquids, and condensates/light oils.

Spartan Delta's free cash flow generating asset bases are concentrated at Deep Basin and Montney. Its Deep Basin production hit around 40k BOE per day, just beating Montney at 30k BOE per day. Operating costs are low, with the potential to expand production.

Spartan’s guidance outlook for 2022 sees average production of between 68.5k to 72.5k BOE per day (40% oil and NGLs) and capital expenditures of approximately $330m.

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In this article:

Industries:
Industrials
Information Technology
Energy
Companies:
Danaos
Avnet
Photronics
Canfor
EuroDry

Author: Kirsteen Mackay

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Kirsteen Mackay does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Kirsteen Mackay has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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