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Kenvue, a consumer health company that split from Johnson & Johnson in 2023, has faced challenges in meeting expectations. However, value investors are looking beyond its current performance and focusing on its potential growth opportunities.
To achieve the desired growth, Kenvue must enhance its skin health and beauty segment, which includes popular brands like Neutrogena and Aveeno, while also maintaining solid growth in its self-care and essential health segments. Recent signs indicate that the company’s marketing efforts in skin health and beauty are paying off, with a 2.6% organic sales growth in the fourth quarter.
Similarly, industrial giant 3M has struggled with growth in recent years. Under new leadership by CEO Bill Brown, the company is building on restructuring efforts initiated by the former CEO to drive revenue growth through new product introductions and operational improvements.
Despite the challenges faced by the oil and natural gas industry, Devon Energy continues to perform well, generating significant cash flow. With oil prices remaining steady, the company is well-positioned for long-term growth.
Overall, these companies show promise for investors seeking opportunities for growth and potential outperformance in the market.
Exciting developments for Devon Energy lie ahead. Management’s optimistic forecast predicts that if the price of oil averages $70 per barrel in 2025, the company stands to generate a minimum of $3 billion in free cash flow. This staggering figure becomes even more significant when compared to Devon’s market capitalization of only $23.6 billion. Representing almost 12.7% of its market cap, this potential cash flow suggests that Devon could theoretically offer a dividend yield of 12.7%.
Prudently, management has allocated 30% of its free cash flow towards reducing its substantial long-term debt of $8.4 billion. Additionally, the company plans to invest $200 million to $300 million per quarter in share buybacks – a smart move considering the current undervaluation of its stock. Despite these financial maneuvers, Devon will continue to pay out a fixed dividend of $0.96 annually, translating to a 2.6% yield at its current share price.
While predicting the future price of oil remains challenging, this uncertainty also presents opportunities for growth. Assuming a stable oil price around $70 per barrel throughout 2025, Devon emerges as an attractive value stock. The successful integration of a 2024 acquisition and the strategic investments in well productivity from the same year – resulting in a 15% increase in feet drilled – position Devon favorably to deliver in 2025. Should oil prices remain strong, there’s a real possibility that the market will reevaluate this stock, potentially enhancing its value proposition.
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*Stock Advisor returns as of February 28, 2025. Lee Samaha holds no positions in the mentioned stocks. The Motley Fool has positions in and endorses 3M and Kenvue, recommending Johnson & Johnson and Solventum, as well as suggesting long January 2026 $13 calls on Kenvue. The Motley Fool adheres to a strict disclosure policy.
