3 Value Stocks to Buy and Hold for Passive Income

The stock market has been on a wild ride lately, with the S&P 500 Index ($SPX) soaring 14.9% year-to-date, largely thanks to the tech sector's impressive performance and Nvidia (NVDA), the star of the show, skyrocketing an incredible 150.4% YTD. However, amid recent indications of a rotation out of the market's tech leaders, there's a growing buzz that value stocks might be ready to steal the spotlight and outshine their growth counterparts. This comes at a time when the global economy is at a crossroads, with global central banks starting to ease up on their restrictive monetary policies - even as the U.S. Fed remains relatively hawkish.

For investors looking to add some diversity to their portfolios as market leaders stumble, a recent note from BMO Capital Markets highlights an investment strategy that zeroes in on stocks with NTM P/E multiples under 15x. They've identified several quality stocks that fit the bill, labeling them as undervalued gems with solid fundamentals - and juicy dividend yields, too. This approach from BMO tracks with recent commentary from Bank of America's (BAC) equity and quant strategist, Savita Subramanian, at Morningstar's annual investment conference - that value stocks are trading at attractive valuations in the U.S. market right now. 

So, which value stocks does BMO think are worth scooping up for the long haul? Here are three, highlighted for their consensus “Buy” ratings on Wall Street, reliable dividends, and room to keep running to their average price targets. For investors looking to add diversity and passive income, these value stock picks could be the perfect addition to your portfolio.

#1. American International Group (AIG): The Resilient Insurer

American International Group (AIG) is a global insurance and financial services powerhouse with a portfolio spanning general insurance, life and retirement services, and other financial products. One of the key attractions for income-focused investors is AIG's consistent dividend policy, offering a quarterly payout of $0.40 per share. This translates to a respectable yield of around 2.15%. 

AIG's stock has been on a solid run, up 10% YTD and 32.8% over the last 52 weeks. It's cooled off slightly from its 52-week high of $80.83 in May, down about 7% from this peak.

AIG's financial performance has been robust, as evidenced by its Q1 2024 earnings report, released on May 1. The company reported earnings per share (EPS) of $1.77, surpassing analysts' expectations of $1.66 by a healthy margin. Adjusted revenue of $12.47 billion also beat the Street.

Looking ahead, analysts project an EPS of $1.77 for Q2 and $7.02 for the full fiscal year 2024. 

When it comes to valuation, AIG presents an intriguing picture. Trading at a trailing P/E ratio of 10.77 and a forward P/E of 10.61, the stock appears attractively priced relative to its earnings potential. 

Recently, AIG announced an agreement to divest its global individual personal travel insurance and assistance business to Zurich Insurance Group for $600 million in cash, plus additional earn-out considerations. This sale, expected to close by the end of 2024, aligns with AIG's strategy to optimize its business portfolio. AIG also achieved a significant milestone with the deconsolidation of Corebridge Financial, Inc. for accounting purposes, marking the final step in separating the two entities.

The analyst community maintains a generally positive outlook on AIG, with a consensus rating of "Moderate Buy," and a mean target price of $84.23 - indicating expected upside potential of 12.4%. Out of 17 analysts offering recommendations, 9 suggest a “Strong Buy,” 2 recommend a “Moderate Buy,” and 6 advise a “Hold.”

#2: Pfizer Inc. (PFE): The Pharmaceutical Giant

Pfizer Inc. (PFE) is a pharmaceutical giant known for its wide range of medicines and vaccines, including the famous COVID-19 vaccine. They continue to show commitment to shareholders with a quarterly dividend payout of $0.42 per share, translating to an annualized dividend of $1.68 and a current yield of around 6.13%.

PFE stock is down 23.6% over the last year, and is trading about 10% above its 52-week low of $25.20. Year-to-date, Pfizer is off 3.4%.

That said, the stock is certainly a value at current levels. Pfizer's trailing P/E ratio is 19.71 and its forward P/E is 11.78, suggesting its future earnings are priced at a discount.

In Q1 2024, Pfizer reported earnings per share of $0.82, surpassing analysts' estimates of $0.53 by a significant margin. Revenue came in at $14.9 billion, which also beat the consensus forecast. The star performers were Pfizer's non-Covid products, which registered 11% operational revenue growth. 

Looking ahead, analysts project EPS of $0.45 for Q2 2024. For the full fiscal year 2024, they're expecting EPS of $2.38, a 29.4% year-over-year increase. Pfizer's next earnings report is due on July 30.

Pfizer has been busy in the lab, scoring a big win in late April with the FDA granting full approval for their cervical cancer treatment. Additionally, their Phase 3 ECHELON-3 study showed that the ADCETRIS combo therapy reduced the risk of death by 37% in patients with a severe form of lymphoma. 

Analysts like the odds for Pfizer, with a consensus rating of "Moderate Buy." Out of 21 analysts, 8 recommend a "Strong Buy," 1 suggests a "Moderate Buy," and 12 advise a “Hold.” The mean target price is $33.37, representing a potential upside of about 20%.

#3: Schlumberger N.V. (SLB): The Energy Services Leader

Schlumberger N.V. (SLB), the world's largest oilfield services company, covers the entire spectrum of oil and gas exploration and extraction. SLB has been consistently rewarding its shareholders with a quarterly dividend of $0.28 per share, and boasts a yield of 2.38% at current levels.

Earlier this year, SLB announced an agreement to acquire a majority stake in carbon capture technology company Aker Carbon Capture for $380 million. This strategic move is aimed at supporting industrial decarbonization while future-proofing SLB’s business.

With a market capitalization of about $66.1 billion, SLB is a heavyweight in the energy sector. However, the stock has had a rough ride lately, and is down nearly 10% on a YTD basis. 

That means it's a good time to scoop up the stock at bargain prices. SLB's TTM P/E ratio of 15.28 and forward P/E of 13.54 suggest that SLB is priced to move at current levels.

SLB's Q1 2024 earnings report, released on April 19, edged past the consensus forecast. The company reported earnings per share (EPS) of $0.75, topping analysts' expectations by a penny, and rising 14% from the same quarter last year. Revenue of $8.71 billion also narrowly topped expectations.

Looking ahead, analysts project an EPS of $0.83 for Q2, and $3.51 for the full fiscal year 2024. Mark your calendars for July 19, when SLB is set to release its next earnings report.

Analysts remain overwhelmingly bullish on SLB, with the mean target price of $66.78, representing a potential upside of about 42%. Out of 21 analysts offering recommendations, 18 suggest a “Strong Buy,” 2 recommend a “Moderate Buy,” and only 1 advises a “Hold.”

Conclusion

So, there you have it – three value stocks that might be worth a closer look for investors seeking both growth potential and passive income.  AIG, PFE, and SLB have all faced their fair share of challenges lately, but they're also showing some promising signs of resilience and adaptation. These companies, highlighted by BMO for their attractive valuations and solid dividend yields, offer a compelling mix of stability and growth potential, making them great candidates for long-term, passive income.