Prediction: These Could Be the Best-Performing Value Stocks Through 2030

Source The Motley Fool

Investors tend to vacillate between favoring growth stocks and value stocks, and both types of companies can be valuable investments when you have a long-term growth horizon. Value stocks can lend consistent growth to your portfolio with time, and are often underpinned by mainstay businesses that are leaders in their respective industries.

If you're looking for top value stocks that look poised to do well over the next decade and beyond, here are two names to consider the next time you go stock shopping.

1. UnitedHealth Group

UnitedHealth Group (NYSE: UNH) is a veteran in the healthcare industry and one of the largest entities in this space thanks to its market-leading insurance business and various provider solutions. Through its UnitedHealthcare segment, the company provides a range of insurance offerings to employers as well as individuals, along with short-term plans, dental plans, Medicare plans, and Medicaid plans.

Its other segment, Optum, features a variety of solutions for both providers and consumers of healthcare. These include pharmacy care services, data analytics and other technological solutions, and software enabled services. The Optum division also includes an extensive network of care delivery locations and services, spanning needs from primary care to speciality care to mobile clinics.

In the first six months of 2024, UnitedHealth Group reported total revenue of $198.7 billion, up 7% year over year, with net earnings of $3.2 billion. While earnings were down from the year-ago period, this was largely a function of its being forced to pay billions of dollars to providers in recent months after a serious cyberattack earlier this year and higher Medicare utilization rates.

Many of these factors are short-term in nature. The largest driver of revenue for UnitedHealth Group is insurance premiums, which accounted for about $155 billion of its total revenue in the first six months of the year.

Over the last five years, UnitedHealth Group has seen its annual revenue rise by roughly 53%, while profits have increased by close to 62% in that time frame. Its annual operating cash flow has also grown by an impressive 57% in the trailing five-year period. The company is a faithful dividend payer, with a forward annual dividend rate of $8.40 per share and a yield of approximately 1.5% based on current share prices. That dividend has increased by roughly 94% in the past five years.

Incidentally, UnitedHealth Group has not only paid, but raised its dividend payout every single year for 15 years and counting. The company's commitment to its dividend and habit of steadily increasing both revenue and earnings from a stable business structure are all characteristics investors should look for in searching for a top value stock. The company looks well positioned to deliver impressive gains to faithful investors over the next decade.

2. Costco Wholesale

Costco Wholesale (NASDAQ: COST) has remained highly resilient despite the volatility afflicting many companies in the brick-and-mortar retail industry, including those that focus primarily on consumer staples. The company is known for its large warehouse stores that sell everything from food to appliances to electronics to furniture. Costco's diversified business model also includes a wide range of benefits for members, including pharmacy care solutions, insurance offerings, auto repair services, and more.

Costco has maintained a simple but rock-solid strategy through the years, with its membership model remaining a core part of that structure. While much of revenue comes from merchandise sales, the business derives most of its profits from membership fees. Costco maintains high levels of customer traffic, both online and in its warehouses, by offering low prices on a selection of third-party and private label products across categories that drive effective inventory turnover.

Costco purchases most of its merchandise directly from suppliers, often at competitive prices, and it passes those savings down to members. The company often offloads inventory before it has even been required to pay the supplier for it, and most merchandise it purchases from suppliers go straight to Costco's shipment depots or its warehouse clubs. Its control over its shipment processes doesn't just extend to stocking warehouses, but also to managing its e-commerce operations. Its e-commerce orders ship through its logistics and depots, as well as through select outside suppliers.

Another part of Costco's strategy is ensuring it doesn't keep too much inventory in its warehouses while also controlling the barriers to entry for shoppers (e.g., requiring members to have a card to enter a location). In fact, Costco typically carries less than 4,000 active stock keeping units in each warehouse. Costco's low-cost model is also supported by its simple warehouse design. Ultimately, management credits its membership format as a key driver of mitigating inventory losses that many other retailers contend with. Shoppers have to be members to get in the door of a warehouse club, and once they are in they are more likely than not to complete a purchase.

The company just reported financial results for its fiscal 2024. Costco reported total revenue of $254.5 billion in the 12-month period, up 5% year over year. That's a solid growth rate for a business at this scale and maturity. Membership fees accounted for $4.8 billion of that top line total, while profits for the year ended at $7.4 billion, up 17% year over year. Costco also finished its fiscal 2024 with nearly 10% more paid executive members than last year, and 7% more paid household members.

As the cherry on top, Costco pays a dividend that it has increased every single year for 19 years and counting. While its yield is on the low end (less than 1%), its annual dividend is $4.64 per share. That dividend and share price growth has helped enable a total return of over 220% for investors over the last five years. Costco also regularly pays special dividends, with its last one being paid out in January 2024 at a whopping $15 per share.

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*Stock Advisor returns as of October 7, 2024

Rachel Warren has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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