For years, analysts and portfolio managers have anticipated the return of value stocks as the market has moved higher, and for years they have continued to underperform growth stocks. However, that appears to be changing in 2021, as almost every metric from valuations to earnings for the growth arena may be ready to roll over some.
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Value stocks typically are defined as those of companies with solid fundamentals that are priced below those of their peers, based on analysis of price-to-earnings ratio, yield and other factors. The BofA Securities Value 10 portfolio is quantitatively generated and is based on the firm’s proprietary program, versus a consensus earnings surprise model, plus three additional screening criteria. The universe the analysts use is the S&P 500.

We screened the Value 10 portfolio for the stocks with the highest dividends. We found five top picks that could be big 2021 winners. While all are rated Buy at BofA Securities, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Cardinal Health

This is also a solid way for more conservative growth and income investors to play the health care sector. Cardinal Health Inc. (NYSE: CAH) is one of the largest drug and medical product distributors. The company generates approximately two-thirds of its profit from the pharmaceutical business and nearly one-third from its medical business.

The pharmaceutical distribution business supports retail/mail/hospital/physician clients, as well as drug manufacturers. The medical business manufactures its own portfolio of medical products and distributes brand-name products to hospitals and physicians.

Shareholders receive a very dependable 3.29% dividend. The BofA Securities team has a $69 price objective on the shares. The Wall Street consensus target is lower at $63. Cardinal Health stock closed on Wednesday at $59.11 per share.

Marathon Petroleum

This is a solid way for more conservative investors to play the energy sector. Marathon Petroleum Corp. (NYSE: MPC) is one of the largest independent petroleum refining and marketing companies in the United States.

Until just recently, Marathon Petroleum operated approximately 2,750 retail sites under the Marathon and Speedway brands. In addition, it operates a logistics network of pipelines, barges, trucks and terminals that store and transport crude and products.

Last year, the company announced it would sell Speedway to 7-11 in an all-cash deal valued at $21 billion, or $16.5 billion after-tax. The sale transforms the company’s balance sheet and creates options to revisit the corporate structure of MPLX. Many on Wall Street feel that with Speedway removed, the dislocation in refining value becomes even more transparent as the company trades much cheaper than its industry peers do. The deal now is expected to close in the second quarter.
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Shareholders receive a 4.36% dividend. The BofA Securities price target is a lofty $83, while the consensus target is at $59.08. Marathon Petroleum stock closed at $53.17 a share on Wednesday.

M&T Bank

Rising interest rates are great for banks, and this is a great regional idea for investors looking to add financial to portfolios. M&T Bank Corp. (NYSE: MTB) operates as the holding company for Manufacturers and Traders Trust Company and for Wilmington Trust, National Association.

Its Business Banking segment offers deposits, business loans and leases and credit cards, as well as cash management, payroll and letters of credit services to small businesses and professionals. The Commercial Banking segment provides credit and banking services for middle-market and large commercial customers. Its Retail Banking segment offers demand, saving, and time accounts; consumer installment loans, automobile and recreational finance loans, home equity loans and lines of credit, and credit cards; mutual funds and annuities; and other services.

The Commercial Real Estate segment offers multifamily residential and commercial real estate credit and deposit services. The Residential Mortgage Banking segment offers residential real estate loans for consumers and sells those loans in the secondary market, and it purchases servicing rights to loans originated by other entities.

The Discretionary Portfolio segment provides deposits; securities, residential real estate loans, and other assets; and short-term and long-term borrowed funds, as well as foreign exchange services. The company also provides trust and wealth management; fiduciary and custodial; investment management; and insurance agency services.

M&T Bank stock investors receive a 2.98% dividend. The $190 BofA Securities price target compares with the posted $162.98 consensus target and Wednesday’s last trade of $147.77 a share.

NRG Energy

This stock has made a nice run off the lows and is also on the US 1 List of top stocks to Buy at BofA Securities. NRG Energy Inc. (NYSE: NRG) is an integrated independent power producer that owns and operates 27 gigawatts (GW) of conventional and renewable generating capacity in the United States and serves 3 million retail customers in Texas and the Northeast.
NRG derives revenue from the sale of electricity in the wholesale and retail markets and the sale of capacity. The company also owns a 64.5% interest in NRG Yield, a publicly traded, dividend growth-oriented company that owns 5 GW of long-term contracted renewable assets.

Last Summer, NRG bought Centrica’s North American energy business in a $3.6 billion deal that nearly doubled the number of homes and businesses NRG serves across the United States and Canada. The all-cash deal to buy Direct Energy gave NRG 3 million more retail customers and is expected to generate about $740 million in annual adjusted earnings before interest, taxes, depreciation and amortization.
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NRG Energy stock comes with a 3.62% dividend. BofA Securities has set its price target at $45. The consensus target is $45.60, and the shares closed Wednesday trading at $35.93 apiece.

Principal Financial

This well-known company is a solid financial play for more conservative investors. Principal Financial Group Inc. (NYSE: PFG) operates in four main segments: Retirement & Income Solutions (RIS), Asset Management (PGI), International and U.S. Insurance.

RIS delivers full-service accumulation, pension products, annuities, mutual funds and other services to individuals and small-to-medium-sized businesses. PGI is a global asset manager. U.S. Insurance provides individual life and disability insurance and group life insurance. Lastly, the International business sells products in Latin America and Asia.

The company posted solid results for the fourth quarter of 2020. Its operating earnings beat the consensus estimate despite a number of one-time headwinds during the quarter. Assets under management growth was well ahead of expectations in both retirement and investment management due to strong fourth-quarter equity results.

Investors receive a very solid 3.87% dividend. The BofA Securities price target is $64. The $61 posted consensus target is also above Wednesday’s closing print of $57.95 a share.

These five outstanding value stocks should continue to do well as the strong rotation to value, cyclical and financial stocks continues. Toss in the added bonus of dividends much higher than the yields of the S&P 500 or the 30-year U.S. Treasury, and there is a strong case for very proactive total return potential with much lower volatility and risk.

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