The past year produced a performance chasm between value and growth equities, with value recapturing the lead following a strong run for growth in recent years. As interest rates rose rapidly in 2022, with the Fed funds rate now around 4.3%, we saw downward pressure on higher-valuation assets, including growth stocks. Many investors gravitated towards more defensive value sectors. A U.S. large-cap value index fell nearly 8% on a total return basis while its growth-style counterpart dropped 29%.
Value will likely continue to outperform growth in the near term as the Fed continues down its rate-hiking path. Here are three value stocks to consider in the first half of 2023.
CF Industries Holdings, Inc. (CF)
CF Industries is a major distributor of North American nitrogen fertilizer products. Disruption in fertilizer supplies caused by the war in Ukraine has sent fertilizer prices soaring to record highs. CF is generating plenty of cash flow to achieve a net cash position, buy back an estimated $1.5 billion in stock in 2023, explore targeted acquisitions and invest in clean nitrogen projects.
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NVR, Inc. (NVR)
NVR is one of the top five major U.S. homebuilders. Rising mortgage rates have weighed on the U.S. housing market. However, as one of the highest-quality homebuilders in the group, the stock has a history of outperforming peers during difficult periods in the housing market cycle.
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Warner Bros. Discovery, Inc. (WBD)
Warner Bros. Discovery is a leading global media company, TV and movie studios. Management’s top priority in the next six months is relaunching a consolidated streaming service with live sports content as a central part of the company’s portfolio, including its rights to March Madness, NHL, MLB playoffs, and the NBA.
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