Value stocks typically trade at discounts to the broader market, offering patient investors the opportunity to buy businesses when they’re out of favor. The key risk, however, is that these stocks are usually cheap for a reason – five cents for a piece of fruit may seem like a great deal until you find out it’s rotten.
Identifying genuine bargains from value traps is something many investors struggle with, which is why we started StockStory - to help you find the best companies. Keeping that in mind, here is one value stock trading at a big discount to its intrinsic value and two climbing an uphill battle.
Two Value Stocks to Sell:
Wendy's (WEN)
Forward P/E Ratio: 12.5x
Founded by Dave Thomas in 1969, Wendy’s (NASDAQ: WEN) is a renowned fast-food chain known for its fresh, never-frozen beef burgers, flavorful menu options, and commitment to quality.
Why Does WEN Worry Us?
- Annual revenue growth of 5.6% over the last five years was below our standards for the restaurant sector
- Sales are projected to remain flat over the next 12 months as demand decelerates from its five-year trend
- High net-debt-to-EBITDA ratio of 7× increases the risk of forced asset sales or dilutive financing if operational performance weakens
Wendy’s stock price of $12.79 implies a valuation ratio of 12.5x forward price-to-earnings. If you’re considering WEN for your portfolio, see our FREE research report to learn more.
Verizon (VZ)
Forward P/E Ratio: 9x
Formed in 1984 as Bell Atlantic after the breakup of Bell System into seven companies, Verizon (NYSE: VZ) is a telecom giant providing a range of communications and internet services.
Why Do We Pass on VZ?
- Weak customer trends over the past two years suggest it may need to improve its products, pricing, or go-to-market strategy
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 2.2 percentage points
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
At $42.40 per share, Verizon trades at 9x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than VZ.
One Value Stock to Watch:
United Rentals (URI)
Forward P/E Ratio: 14.1x
Owning the largest rental fleet in the world, United Rentals (NYSE: URI) provides equipment rental and related services to construction, industrial, and infrastructure industries.
Why Does URI Stand Out?
- Market share has increased this cycle as its 12.1% annual revenue growth over the last two years was exceptional
- Healthy operating margin of 25.6% shows it’s a well-run company with efficient processes, and its rise over the last five years was fueled by some leverage on its fixed costs
- Performance over the past five years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
United Rentals is trading at $629.94 per share, or 14.1x forward price-to-earnings. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Axon (+711% five-year return). Find your next big winner with StockStory today for free.
