I’m always looking for investment ideas to share with readers. I don’t care if it’s an original idea; what matters is that it provides alternatives. In this case, I saw an article published by MarketWatch in late July that discussed 20 long-term value stocks to buy.
MarketWatch’s Philip van Doorn screened for value stocks from the Russell 1000 Value Index, a collection of 872 stocks exhibiting value characteristics such as low price-to-book ratios and lower sales growth over the next five years.
He used return on invested capital to slim the herd to make his selections, writing:
“A company’s return on invested capital (ROIC) is its profit divided by the sum of the carrying value of its common stock, preferred stock, long-term debt and capitalized lease obligations.”
The company with the highest 10-year average ROIC was VeriSign (NASDAQ:VRSN), which just happens to be Berkshire Hathaway’s (NYSE:BRK-A, NYSE:BRK-B) 16th-largest equity holding valued at $2.27 billion. It also had the top three-year average ROIC of the 20 names.
Here are three other long-term value stocks to buy now. Each has a 10-year total return higher than the S&P 500’s 230% cumulative return.
Lennox International (LII)
According to van Doorn, Lennox International (NYSE:LII) had a 10-year average ROIC of 37.3%, a three-year average ROIC of 42.9% and a 10-year total return of 579% through July 24.
I like Lennox because of its position within the HVAC industry. The company’s investor relations site states:
“Our industry-leading products reduce energy consumption, support the shift towards electrification and promote the growing interest in environmental sustainability.”
It reported its 2024 results on July 24, which included core revenue growth of 8% year-over-year to $1.45 billion with an adjusted segment profit of $319 million, 13% higher than Q2 2023.
Due to the healthy results in the second quarter, it raised its earnings per share guidance for 2024 to $19.88 at the midpoint, up from $19.50 previously. Despite its shares gaining 44% over the past year and given its excellent ROIC, it still trades at a reasonable 27.3x the EPS estimate.
O’Reilly Automotive (ORLY)
O’Reilly Automotive (NASDAQ:ORLY) has a 10-year average ROIC of 33.3%, a three-year average ROIC of 42.0% and a 10-year total return of 592%.
I’ve been recommending the retail provider of aftermarket auto parts and tools for years. My most recent recommendation was in March. I suggested it’s a share repurchase machine, generating a 339% return on investment from its $23.4 billion share repurchases over the past 13 years.
The retailer’s consistency is hard to beat. Over the past five years, it’s averaged same-store sales growth of 8.5% while reducing its share count by nearly 22%, from 77.79 million at the end of 2019 to 61.0 million at the end of 2023.
In January, it acquired Groupe Del Vasto, a Montreal-based auto parts supplier that serves the Canadian marketplace under the Vast Auto brand. It paid approximately $155.4 million for the acquisition.
Vast Auto has two distribution centers and six satellite warehouses supporting 23 company-owned stores and thousands of independent jobber and professional customers across Eastern Canada.
It gives O’Reilly its entry into the Canadian market. It is a brilliant and strategic option in long-term value stocks.
Williams-Sonoma (WSM)
Williams-Sonoma (NYSE:WSM) has a 10-year average ROIC of 28.6%, a three-year average ROIC of 41.6% and a 10-year total return of 459%.
This company is one of my favorite retailers. When I first started recommending WSM in 2016, it generated approximately 53% of its revenue online. Today, it’s up to 66%. In the seven years, its operating profit has grown by 162% from $473 million in 2016 to $1.24 billion in 2023. At the same time, its operating margin has increased by 670 basis points to 16.0% from 9.3% in 2016.
Surprisingly, very few analysts like this stock. Of the 26 that cover it, only five rate it a “buy,” with a $153.97 target price, 12% higher where it’s currently trading.
In 2024, it is focused on reigniting its sales growth, which has stalled after tremendous growth during Covid-19. However, despite the slowdown, it managed to boost profitability. President and Chief Executive Officer, Laura Alber, said the company remained “committed to executing on our three key priorities in 2024 — returning to growth, elevating our world-class customer service and driving margin.”
Alber’s been the CEO for the past 14 years. The healthy ROIC is all her doing.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.