3 Value Stocks For Those Moving Up In The World
By Steve Symington | June 23, 2017 |

One of the primary goals of any investor should be to beat the returns of the broader stock market. And arguably the best way to do so -- and, in turn, to predictably create wealth as you move up in the world -- is to buy and hold solid value stocks. 

So we asked three top Motley Fool contributors to each choose a stock they believe will help investors to that end. Read on to learn why they chose Alphabet (Nasdaq: GOOG)(Nasdaq: GOOGL), Walt Disney Co. (NYSE: DIS), and Atlas Air Worldwide (Nasdaq: AAWW).

Invest In The Connected Future Of The World
Steve Symington (Alphabet): Google parent Alphabet is up more than 20% so far in 2016, most recently bolstered by the Internet search juggernaut's strong first-quarter 2016 results in late April. But with shares trading at just 24 times this year's expected earnings -- and given Alphabet's enviable long-term runway for growth -- I still think the stock is a promising bet for investors willing to buy now and watch its story continue to play out. 

Consider, for example, that roughly two-thirds of the world still doesn't have access to the internet. That's a problem Alphabet is working to solve through "moonshot" initiatives such as Project Loon, which literally delivers balloon-based internet to rural, remote, and even disaster-ridden parts of the world. 

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Apart from the obvious humanitarian aspect of fulfilling such a goal, it's easy to see what Alphabet has to gain financially from helping to bring internet connectivity to the globe. Alphabet's revenue last quarter climbed an incredible 22.2% year over year to $24.75 billion, and nearly 87% of that total came from advertising. Non-advertising revenue within Alphabet's Google segment also climbed an impressive 49.4% year over year to nearly $3.1 billion, thanks to Alphabet's popular Play, hardware, and cloud solutions products. 

That's not to mention Alphabet's intriguing "other bets" segment -- under which Project Loon falls, by the way -- which consists mostly of early-stage businesses that are still in their respective pre-revenue stages. As it stands, other-bets revenue rose 47.9% year over year last quarter to $244 million, driven by a combination of Nest connected-home products, Fiber high-speed internet, and Verily life-sciences solutions. As a whole, Alphabet's other bets are still unprofitable and remain effectively supported by its Google operations. But over the long term, they could each morph into distinct, lucrative opportunities for incremental revenue and earnings.

Short-Term Issues Disguising Serious Long-Term Value
Jason Hall (Walt Disney Co.): Disney counts on its cable-networks unit for a substantial amount of its profit, and for a number of years, ESPN was considered a bulwark, keeping millions of sports-loving cable subscribers paying for cable simply for ESPN's live sports programming. 

But something happened on the way to the bank. Cable subscriber numbers started falling, and even live sports through ESPN hasn't been enough to stop the cord-cutting. That's a bad thing for ESPN and Disney since the hefty premium the company collects for every cable subscriber has been counted on to pay for all that exclusive (and expensive) live sports content. 

This has Disney's stock trading down 13% from its all-time high, even after it rebounded strongly earlier this year. And it could even cause the stock price to fall again in the near future, as Disney works to address this content-delivery problem at ESPN. 

But savvy investors who can take on the short-term risk could do very well to buy Disney now. After all, this is a problem with how people watch, not whether they will watch. Disney will either adapt to the cord-cutter trend and find a way to monetize ESPN outside the traditional cable model or maybe just sell it off.

Either way, ESPN is a small part of what makes Disney a value. The company owns some of the best-known, most-loved entertainment properties in the world, and fans will be paying good money for decades -- maybe centuries -- to be entertained by Marvel, Pixar, Lucasfilm, and other Disney properties. Trading for 18.5 times trailing earnings, Disney stock is a fair value -- if not downright cheap -- for the long-term potential. 

A True High-Flier Among Value Stocks
Chuck Saletta (Atlas Air Worldwide): There's not much in this world higher than the sky, and that's where the assets of Atlas Air Worldwide spend much of their time. As an aircraft leasing company, Atlas Air can certainly stand as a symbol of moving up in the world. And with its current market price offering the business up at attractive ratios, it definitely looks like a value stock worth considering.

Atlas Air currently trades at around 0.9 times its book value and around 6 times its operating cash flow. Metrics like that typically reflect a business in crisis, but analysts are expecting the company to grow its earnings at a better than 12% annualized clip over the next five years. Even if that growth doesn't materialize, with metrics like that, there's plenty of room for the analysts to be wrong but for the company's owners to still have value in their position.

As important as those valuation metrics are, Atlas Air also has a reasonable debt load, with a debt-to-equity ratio of around 1.3 and interest expense that's covered by operating income. Having a manageable debt load is critically important in this business -- for the very same reason, the company appears to be such a bargain. The air leasing industry can be brutally competitive.

The key problem with the industry -- and the primary risk to Atlas Air Worldwide's business -- is that airplanes are incredibly mobile. Extra airplane capacity can get itself virtually anywhere in the world, in a matter of days. As a result, Atlas Air finds it difficult to sustainably charge a high premium for its services. If it tried, that would invite competition willing to undercut its prices, eating away the margin potential.

So while the measures make Atlas Air Worldwide a potentially great value stock for those moving up in the world, its business makes it one that's not likely to see sky-high stock prices anytime soon. If you invest, invest with those reasonable prospects in mind.

This article originally appeared on The Motley Fool and was written by Steve Symington, Chuck Saletta, and Jason Hall.