Five stocks offer both value, outperforming momentum

MOST value stocks — those that are reasonably priced or cheap — are struggling to gain traction this year. Growth stocks are ruling the roost.

But a few value stocks are outperforming the market. For people who relish both value and some price action, here are five stocks to consider. Each sells for 15 times earnings or less, and each is up at least 26 percent year to date, beating the Standard & Poor’s 500 Total Return Index by 10 percentage points or more.

Paccar

Paccar Inc. (PCAR), based in Bellevue, Washington, makes heavy-duty and medium-duty trucks under the Peterbilt and Kenworth brands. If things keep going as they did in the first half, this will be the company’s most profitable year ever.

I consider a 15 percent return on stockholders’ equity to be a mark of strong profitability. Paccar has achieved that in 11 of the past 15 years. The stock is up 29 percent this year and sells for 12 times earnings. Over the past decade, it’s usually fetched more like 16 times earnings.

Modine

Modine Manufacturing Co. (MOD), out of Racine, Wisconsin, makes heating and air conditioning equipment for cars, trucks and buildings. Lately, one of its specialties has been data center cooling. Brands include Airedale, Coiltech, Heatcraft and Modine.

The stock has more than doubled this year. Before that, it was fairly stagnant from 2013 through 2021. It has been an inconsistent earner in the past, with losses in three of the past 10 years. But operating results have been strong lately, with a return on equity of 35 percent in the past four quarters.

Alpha Metallurgical

Particularly cheap is Alpha Metallurgical Resources Inc. (AMR), headquartered in Bristol, Tennessee. The company mines coal in Virginia and West Virginia.

Alpha Metallurgical sells for between three and four times earnings. That has been its typical multiple for the past decade, during which this unpopular stock rose 1,060 percent. It has popped 43 percent this year. Alpha has barely a speck of debt.

The company is making a return appearance on this list, having also been featured in June of last year.

Earthstone

From Woodlands, Texas, comes Earthstone Energy Inc. (ESTE), which produces oil and gas in the west and south of Texas. For an oil company, it’s fairly small, with a market value of a little over $2 billion.

Earthstone’s profits jumped sharply last year. Before that, it had occasional strong years and a lot of mediocre ones.

Analysts expect the strong growth to continue through 2024. Of 10 Wall Street analysts who cover the stock, nine call it a “buy.” Such near-unanimity isn’t always a good sign, but in this case I’m on board.

American Woodmark

Rounding out my list today is American Woodmark Corp. (AMWD). The company, based in Winchester, Virginia, makes kitchen cabinets and vanities.

Over the past 10 years, American Woodmark has increased its revenue by more than 11 percent per year. For that reason, the stock typically sells for about 22 times earnings. But it’s available for only 13 times earnings now.

Track record

I generally write a column twice a year on stocks that I think show both value and momentum. This is my 43rd column in the series, and oneyear results can be calculated for 41 columns.

The average one-year return has been 11.9 percent, compared to 9.7 percent for the Standard & Poor’s 500 Total Return Index.

John Dorfman is chairman of Dorfman Value Investments in Boston, Massachusetts. His firm or clients may own or trade the stocks discussed here. He can be reached at jdorfman@dorfmanvalue.com.