I hold positions in two great value stocks. Let’s take a closer look at what made me buy the shares.
What are value stocks?
These stocks can trade at a discounted value compared to their actual value.
I believe value investing requires more research and due diligence than any other type of investing. This is because I am looking for value in stocks that others may not see or realise.
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When looking to buy value stocks, I look at the price-to-earnings (P/E) ratio, and price-to-earnings growth ratio. Both of these can tell me if a share is currently under-, over-, or fairly valued. In addition to this, I look at market share, the industry as a whole, recent performance, passive income opportunity, and — crucially — growth prospects moving forward.
Telecommunications in emerging markets
Airtel Africa (LSE: AAF) is a UK-based business that provides telecommunications and mobile money services in Africa.
I believe Airtel has exciting growth prospects for the future. Telecommunications adoption in Africa is a burgeoning market, and Airtel has made great strides in growth to date, boosting its market presence and investing in its infrastructure.
Airtel also has a good performance record of late too. I am conscious that past performance is not a guarantee of the future. However, I can see that it has increased revenue and gross profit for the past four years.
Next, Airtel shares currently trade on a P/E ratio of just 8, which tells me the shares may be undervalued. In addition to this, it currently pays a dividend with a yield of 3.5%. I am aware that dividends are not guaranteed and can be cancelled at the discretion of the business at any time.
From a bearish perspective, Airtel operates in a risky territory from a geopolitical perspective. If there were any political issues or instability in Africa, this could spell trouble for Airtel and its performance and shareholder returns.
Sportswear and streetwear
JD Sport Fashion (LSE: JD) has risen atop the sportswear and streetwear market in recent years. I added JD shares to my portfolio some time ago, but still believe it is an excellent value stock.
Like Airtel, JD has an excellent record of performance in recent times. It has increased revenue and gross profit for the past four years. JD currently pays a dividend with a modest yield of 0.5%, but I believe this will increase in the longer term.
JD has also diversified into other segments including its own brand sportswear lines, and opening gyms throughout the UK via its JD Gyms brand. I believe these growth initiatives will continue to boost its performance and returns.
At present, JD Sports currently holds a price-to-earnings growth ratio of 0.8. The general consensus is that a ratio of below 1 indicates a stock is undervalued. In addition to this, I believe JD has the size, market reach and share to capitalise on the hugely popular athleisure fashion market. In fact, this market is one of the fastest growing in the world.
From a risk perspective, JD is at the mercy of rising costs, which could see profit margins squeezed. Furthermore, the current cost-of-living crisis may see consumers move away from the higher-end brands that JD sells towards fast fashion, which is a cheaper alternative.
