Forecast: These could be the best performing value stocks by 2030

Some stocks are cheap for a season. Others are cheap for a reason. And that reason persists over time.

It’s not always easy to distinguish between these two groups. However, there are some stocks that I am convinced belong in the first category rather than the second. I expect these could be the best performing value stocks through 2030.

1. Dr. Horton

Dr. Horton (DHI 1.56%) The stock is still dirt cheap, trading at a price-to-earnings ratio of just 11. However, the homebuilder has a lot of momentum right now, up nearly 30% since the beginning of July. I expect DR Horton’s momentum to continue both in the short term and the long term.

The big near-term catalyst for the company could come as early as September if the Federal Reserve cuts interest rates, as is widely expected. That could cause several dominoes to fall. Lower interest rates could lead to lower mortgage rates…lower mortgage rates could lead to an increase in home purchases…an increase in home purchases could boost DR Horton’s sales and profits.

DR Horton has handled a higher interest rate environment well, thanks in part to incentives for homebuyers. But Jessica Hansen, the company’s head of investor relations and senior vice president of communications and human resources, said during the company’s second-quarter conference call in mid-July, “Obviously, we would view any decline in interest rates as beneficial and expect some relief on incentives.”

Even better is this long-term tailwind: The United States has a housing shortage estimated at as many as 4.5 million units. As the country’s largest housing developer, DR Horton is in a particularly good position to capitalize on the demand for more housing.

2. Energy transfer

Energy transfer (ET 1.94%) is even more of a value stock than DR Horton. The limited partnership (LP) shares trade at just under 10 times earnings estimates. What’s particularly notable about this valuation is that Energy Transfer is up nearly 70% over the past three years and is up over 15% so far through 2024.

I expect Energy Transfer to deliver attractive total returns for the rest of the decade, and the midstream energy company’s distributions should be a big help. The distribution yield is currently above 8%, and Energy Transfer plans to increase its distribution by 3% to 5% annually.

Analysts surveyed by LSEG forecast that Energy Transfer will grow its earnings by an average of 14% per year over the next five years. I think that this growth rate is quite achievable and could even continue for longer.

Global demand for crude oil, natural gas and natural gas liquids is likely to increase regardless of who is in the White House. Energy Transfer’s acquisitions and organic expansion should fuel growth and, combined with its attractive distributions, generate exceptional total returns.

3. Pfizer

The average health value in the S&P500 is trading at almost 19 times expected earnings. Pfizer‘S (PFE -1.43%) The forward earnings multiple is around 11. The big pharma’s stock performance has been lackluster at best in 2024 and downright disastrous over the past two years. However, I like Pfizer’s prospects.

Declining sales of COVID-19 products have been an albatross around Pfizer’s neck for the past few years. But in my opinion, the worst is over. I expect Pfizer’s COVID-19 vaccine sales to increase even further if the company’s combination COVID-19 vaccine receives regulatory approval.

Pfizer faces the loss of patent protection on several products in the next few years. The good news, however, is that the company’s acquisitions and investments in research and development should pay off. Pfizer expects the company to generate more than enough revenue to offset the looming patent loss.

I expect Pfizer’s dividend will give the company a similar benefit as Energy Transfer’s payout did to the midstream company. Pfizer’s dividend yield is over 5.8%. It shouldn’t take much price appreciation to make Pfizer one of the best value stocks in terms of total return.