With the overall market looking expensive, it can be prudent for investors in search of new stocks to add to their portfolios to dig into companies that, for whatever reason, are trading at discounts. Some might have the potential to close their valuation gaps and become above-average investments.
For a variety of different reasons, consumer health company Kenvue(NYSE: KVUE), industrial conglomerate 3M(NYSE: MMM), and oil and natural gas company Devon Energy(NYSE: DVN) are all trading at a discount. Let's look at why all three could be excellent value stock picks in 2025.
Image source: Getty Images.
Kenvue's road to recovery
Consumer health company Kenvue hasn't performed as well as hoped since it was spun off from Johnson & Johnson in the summer of 2023. Still, value investors don't usually buy stocks for what they are, but rather for what they could be.
For Kenvue to become what investors hope it could be, it will have to improve its performance in the skin health and beauty segment (where it owns brands such as Neutrogena and Aveeno) while maintaining solid growth in its self-care segment (featuring the likes of Tylenol, Nicorette, and Zyrtec) and its essential health business (home to Listerine and Band-Aid, among others).
The good news is there are signs that its marketing and promotional investments in skin health and beauty are starting to pay off. That segment achieved 2.6% organic sales growth in the fourth quarter compared to a 1.9% decline for the full year. If Kenvue can maintain its momentum in that segment -- and if management's overall brand investments across its portfolio pay off -- then all three segments could see growth pick up in the second half of 2025 leading into 2026. And if the company is firing on all cylinders by the end of the year, the stock could receive a rerating, as the market has typically been willing to pay a premium for stocks with reliable earnings across the economic cycle. Kenvue's dividend, which yields 3.5% at the current share price, adds to the stock's attractiveness for value investors.
3M is already on the road to recovery
Industrial giant 3M's growth has also disappointed in recent years. However, it has plenty of opportunities for improvement, and the new management team, led by CEO Bill Brown (who was appointed in May 2024) is building on the foundations of the restructuring initiated by former CEO Mike Roman.
Roman's restructuring, which included spinning off 3M's healthcare business as Solventum in 2024, cutting less profitable consumer product lines, reducing management layers, cutting jobs, and changing its go-to-market strategy in its less important geographies, has resulted in a long-awaited margin expansion. Brown intends for 3M to galvanize long-term revenue growth by emphasizing new product introductions, and he outlined his plans on that front at the company's recent investor day event.
In addition, Brown has a host of operational improvements planned, such as utilizing its infrastructure better and improving on-time in-full deliveries to distributors, notably in its safety and industrial segment businesses.
Image source: Getty Images.
While these changes may seem unexciting, and investors won't see their impact on the revenue line for a while, they will enhance 3M's profitability and lay the groundwork for significant growth. Let's put it this way: 3M started 2024 as a business lacking in new product growth, failing to deliver its products satisfactorily to customers, and underutilizing its assets. The changes it has underway are music to the ears of value investors, not least because those operational improvements will translate into margin expansions and sales growth. That could drive long-term growth for 3M stock.
Devon Energy is gushing oil and cash flow
The market fell out of love with oil and natural gas stocks last year. However, despite the doom and gloom, West Texas Intermediate crude still has a $70 handle and didn't trade below $65 in the last year. That kind of pricing is good news for Devon Energy. For example, management has forecast that if the price of oil averages $70 a barrel in 2025, it will generate at least $3 billion in free cash flow.
That's a large number, and an even more significant one when compared to Devon's market cap of just $23.6 billion. It's almost 12.7% of its market cap, implying that Devon could, at least in theory, pay a dividend that yielded 12.7%.
That said, management is sensibly using 30% of its free cash flow to pay down its $8.4 billion in long-term debt. It also plans to spend $200 million to $300 million per quarter on share buybacks -- a good strategy given the stock's low valuation. Meanwhile, Devon will continue to pay a fixed dividend of $0.96 a year, equating to a 2.6% yield at the current share price.
It's difficult to predict the price of oil, but that applies on the upside as much as it does on the downside. So, if you assume that oil will hold steady in the vicinity of $70 a barrel for 2025, then Devon looks like an outstanding value stock. With its integration of a 2024 acquisition and management's investments in well productivity in 2024 paying off (a 15% increase in feet drilled), Devon is well positioned operationally to deliver in 2025. If the price of oil holds up, there's every chance that the market will rerate this stock, which already looks like a great value.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends 3M and Kenvue. The Motley Fool recommends Johnson & Johnson and Solventum and recommends the following options: long January 2026 $13 calls on Kenvue. The Motley Fool has a disclosure policy.
