2 Top Value Stocks Wall Street Can't Hate Forever

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With the markets soaring as they have over the past half-decade, it's not as easy as it once was for value investors to hunt down fantastic companies at tantalizing prices. But it's not impossible. Both General Mills (NYSE: GIS) and General Motors (NYSE: GM) have a lot to offer investors as they trade at forward price-to-earnings ratios of 15.1 and 5.7, respectively, per Morningstar.com consensus forward estimates. Let's dig in.

Powering growth

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General Mills has incredible brand power with household names like Cheerios, Betty Crocker, Haagen-Dazs, Pillsbury, Nature Valley, and Old El Paso, among many others. Yet its ability to generate shareholder returns is based on two simple factors: sales growth and margin expansion. Recently, General Mills also made it clear it was willing to make acquisitions to fuel top-line growth when it agreed to acquire pet-food maker Blue Buffalo (NASDAQ: BUFF) for $40 per share, or an enterprise value of roughly $8 billion, which some considered a bit pricey.

It's a phenomenal addition brand-wise and gives General Mills a leading position in the large, and quickly expanding, natural-pet-food category. America's growing love for healthy food isn't limited to human consumers. Pet owners are continuing to seek out more-natural and premium products for their favorite critters. From 2014 through 2017, Blue Buffalo's compound annual sales growth rate was 12% while adjusted EBITDA was an impressive 18%, and that could improve when General Mills' talent begins contributing insights on research and development, marketing, and distribution.

Another way to power shareholder returns is through margin expansion. General Mills has reduced costs in a big way in recent years. Project savings totaled only $75 million in 2015 but jumped to $350 million in fiscal 2016 and reached $540 million in fiscal 2017 -- and the project's cumulative target in fiscal 2018 is an admirable $700 million. That's pushed General Mills' adjusted operating profit margin from 16.8% in 2016 to 18.1% in 2017, with the latter figure topping its U.S. food peers' median of 17.2%.

Because of General Mills's significant brand power, its strategies to boost its top line through acquisitions and organic growth, and its plan to reduce costs and boost margins, investors should at least consider this value stock.

Powering innovation

Investors know what General Motors brings to the table currently: high-volume sales of high-margin trucks and SUVs. Sales of those vehicles in North America have driven Detroit's largest automaker to record profits in recent years, but the company finds itself in a transition period as it hopes to optimize its high-margin sales during the near term while investing in smart-mobility projects, such as its Maven brand focusing on ridesharing programs, and autonomous vehicles.

For the near term, GM is focusing on market share in the truck franchise -- GM estimates it to be a $65 billion high-margin business. It has strong market share across the board, which is good news for investors because brand loyalty among truck owners is more than 30% higher than in other vehicle segments. Management is confident that the next-generation Chevrolet Silverado and GMC Sierra are going to perform well with eight distinct models that offer a bigger truck in every dimension and still manage a 450-pound reduction in overall weight.

Beyond high-margin trucks, GM needs to show growth in adjacent businesses that include anything from General Motors Financial (GMF), OnStar, other aftersales products and services, and the future of smart-mobility services such as Maven and the ridesharing businesses it's testing. Management estimates it can improve aftersales, GMF, and OnStar profits by $1.5 billion between 2017 and 2021.

General Motors is positioned well to profit in the near term from a fresh vehicle portfolio increasingly favoring high-margin products, as well as in the future by focusing on developing adjacent businesses to drive bottom-line profits. In the meantime, GM will maintain its quarterly dividend of $0.38 per share -- a yield of roughly 3.6% -- improve its return on invested capital, and buy back shares. All those factors make General Motors a stock investors should take another look at.

Both General Mills and General Motors have been left behind by most of Wall Street, simply because the enticing growth has slowed as these companies grew into their massive footprints. But the recent move by General Mills shows it's ready to pull the trigger on acquisitions that boost the top line. And in time, investors might recognize the immense potential GM has through its adjacent businesses and the potentially lucrative future of driverless vehicles. Wall Street might find it hard to hate these stocks forever, and investors should keep both stocks on their watch list.

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Daniel Miller owns shares of General Motors. The Motley Fool is short shares of General Mills. The Motley Fool has a disclosure policy.