A Special Update for Value Authority: Value Bounces Back

The New Year is only three weeks away—can you believe it? With the holiday season upon us and 2024 around the corner, I thought it was a great time to connect and review why is now the perfect time to be a Value Authority investor.

The fact is that the market environment has improved for value stocks in the past six weeks, and it should continue to improve in the New Year.

Investors are now more confident that the U.S. economy will achieve a “soft landing.” In other words, the Federal Reserve will be able to lower interest rates with the inflation rate declining and not risk throwing the U.S. economy into a recession. With this scenario in mind, traders don’t feel the need to be invested heavily in growth companies, which can increase the top and bottom lines in just about any economic condition.

Personally, I believe the market is getting a bit ahead of itself on the possibility of rate cuts, and that could cause some near-term weakness. But, in the meantime, our stocks have done well in recent weeks, and we were able to take profits in both Patterson Companies (PDCO) and in our HP Inc. (HPQ) Value trade. Our stocks are also poised to continue their strong recent performance in 2024.

Remember, our Value Authority stocks remain attractively valued, with good dividend yields. So, if we don’t have a recession, and one does not see imminent, our stocks should enjoy good earnings results in 2024. While there may be some ups and downs, I expect the recent gains to continue; we just need to stay patient.

A Couple Position Updates

Kraft Heinz (KHC) shares have done well recently, aided by the company’s plans to repurchase $3.0 billion in shares by December 2026. Given that company’s market capitalization is about $44 billion, the amount is not inconsiderable and should help earnings growth in a meaningful way. The stock remains attractively valued at 12X 2024 EPS estimates, and I have a good amount of confidence that my $40 price target will be achieved next year. KHC is a buy below $35.

Honeywell (HON), which had been performing well, slipped on Friday when the company announced it was purchasing Carrier’s Global Access Solutions Business for $4.95 billion in cash. The acquisition should fit well with HON’s Building Automation segment, and the deal will be accretive to cash EPS within a year. However, investors felt HON paid too much for the acquisition at 13X Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) including the benefits of synergies, which does seem a little on the high side.

HON, though, has a history of executing on deals strongly, and I think this one will work out over the long-term. Shares have also rebounded this morning. So, after lagging the S&P 500 this year, I believe the shares will perform well in 2024. Buy HON below $200. My target is $220.