2 High-yield, high-value stocks poised for double-digit growth

Value and return are where you find them and you will find them with Verizon CommunicationsNew York Stock Exchange: VZ AND Hydromassage NYSE:WHR. These stocks trade at discounted valuations to the overall market, offer value relative to historical metrics, and pay yields well above the average for dividend-paying stocks. Whirlpool’s Reliable Payout is the lowest yield in this group, around 6.65%, supported by solid cash flow and efforts to improve operational quality.

Today’s bottom line is that these stocks also have improving analyst support and the potential for double-digit upside. With a return to growth in the forecast, these stocks could sustain multi-year rallies as value improvement efforts gain traction.

Verizon is on the verge of a major market reversal

Verizon’s results, outlook and capital returns see the market on the verge of a significant turnaround. Price action over the last eighteen months has taken this market to the bottom and has formed a head and shoulders reversal pattern supported by analyst sentiment. Over the last twelve months analysts have raised sentiment ratings and price targets, raising the sentiment rating to Moderate Buy from Hold and stabilizing the price target. The telecom stock yields about 6.75%, trading at less than half the valuation of the average S&P 500 company.

The consensus target reported by Marketbeat.com is down year-over-year but up 500 basis points last quarter. At $44, it is more than 10% higher than the current stock and driven higher by recent revisions. Multiple revisions following the release of fourth-quarter earnings took the market for this stock trading into the $45 to $50 range, lifting it to new multi-year highs. In this scenario, the market will confirm a reversal when it breaks above $42.50, opening the door for a $12 to $15 increase in price action.

Drivers of sentiment and price action include renewed strength in the consumer goods sector, improving free cash flow, debt reduction and capital returns. Wireless outperformed in the fourth quarter, up 3.2%, as consumer markets returned to growth. Debt reduction left net/adjusted EBITDA down ten basis points year over year to 2.6X; further improvement is expected. The long-term outlook includes marginal revenue growth and incremental earnings improvement, so dividend growth is also expected. The company has already increased payments for nineteen years; a twentieth is expected by the end of the year.

Whirlpool’s high-yielding dividend is not a red flag

Whirlpool has just as high a dividend as Verizon and is in an equally good position to drive its stock price higher. Like the Verizon market, Whirlpool’s stock price has been trending down for the past two years, but it has bottomed and is poised to rise. The fund is marked by technical action and outlook, which are tepid but include plans to improve cash flow, capital returns and shareholder value.

The problems plaguing WHR today are persistent debt and weak earnings relative to long-term goals. The company recognizes that the payout ratio is above target but is committed to sustaining payments; expects the 45% payout ratio to decline over time and is comfortable with the trends.

The debt is due to the acquisition of InSinkErator, which is expected to pay itself off over time. Efforts to change ratios and improve growth include selling a 25% stake in an Indian appliance company, paying off $1 billion in debt this year and plans to improve margin in the United States. US margin is expected to grow more than 300 basis points to 10% by 2026.

Analyst sentiment is improving for Whirlpool and is leading the market towards a turnaround. Sentiment is Hold from Reduce with a recent start to Buy, and the consensus price target is rising. The consensus target is up 300 basis points after the release, reversing a downward trend that has been in play for over a year. The consensus target is $122, which is significant because it is near a one-year high and a level that could lead to a more substantial gain in the coming years.

Before you consider Whirlpool, you’ll want to hear this.

MarketBeat tracks Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and Whirlpool wasn’t on the list.

While Whirlpool currently has a “Hold” rating among analysts, top analysts believe these five stocks are better buys.

View the five stocks here