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We are in the middle of a volatile May after a solid April. Severe volatility that hit U.S. stock markets in early 2022, continued till the first quarter of this year. However, investors sailed smoothly in April as weakness in several key economic metric raised hope that the Fed would stop its interest rate hike regime anytime soon.
Volatility erupted in May following the fear of a recession in the U.S. economy later this year. In the past month, Wall Street remained rangebound on concerns stemming from the regional banking turmoil. In its recently concluded May FOMC meeting, the Fed raised the benchmark interest rate by 25 basis points to the range of 5-5.25%, making it the highest Fed Fund rate since August 2007.
Fed Chairman Jerome Powell indicated that the ongoing rate hike cycle is perhaps reaching its end, although it will depend on the outcome of economic data. The Fed Chair acknowledged that the current banking turmoil in the United States has led to tighter credit conditions, and is likely to impact economic activities.
In the first half of May, the large-cap centric Dow and S&P 500 indexes closed in negative territory. The mid-cap specific S&P 400 Index and the small-cap benchmark Russell 2000 also ended in a negative zone. The tech-heavy Nasdaq Composite is the sole index that managed to gain marginally in the same period.
At this stage, investors should be prepared to minimize fluctuations in their portfolio and consequently rebalance it with suitable financial assets to maintain stability. It would be prudent to pick value stocks with a favorable Zacks Rank to cushion the portfolio as well as make some gains from the upside potential. These stocks could prove to be valuable once the rally resumes.
The chart below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research
General Motors Co. (GM - Free Report) has a compelling portfolio with strong demand for its quality full-size pickups and SUVs. GM’s hot-selling brands in America like Chevrolet Silverado, Equinox and GMC Sierra are driving the top line. We expect General Motors' total revenues to inch up 2.8% in 2023.
General Motors will have nine electric vehicle models in the North America market this year, which will buoy top-line growth. GM’s Ultium platform and battery plants in Ohio, Tennessee and Lansing are set to scale up its e-mobility prowess. GM’s strides in autonomous vehicle development also augur well for long-term growth.
The forward P/E of General Motors for the current financial year is 4.61X, lower than the industry average of 9.84X. It has a PEG ratio of 0.47, lower than the industry average of 1.20. The Zacks Consensus Estimate for current-year earnings has improved 2.1% over the last seven days.
United Airlines Holdings Inc. (UAL - Free Report) is seeing steady recovery in domestic and international air-travel demand. Owing to robust air-travel demand, UAL expects revenues for the June quarter to grow 14-16% year over year. Our second-quarter total revenue estimate indicates a 14.7% year-over-year increase.
For second-quarter 2023, United Airlines expects capacity to improve almost 18.5% from the year-ago reported figure. UAL's focus on cargo revenues is encouraging. UAL's fleet-upgrade efforts are commendable as well.
The forward P/E of United Airlines for the current financial year is 4.16X, lower than the industry average of 9.74X. It has a PEG ratio of 0.09, lower than the industry average of 0.28. The Zacks Consensus Estimate for current-year earnings has improved 6.3% over the last 30 days.
Unum Group’s (UNM - Free Report) conservative pricing and reservation practices have contributed to overall profitability. Sustained increase in premiums is being fueled by high persistency levels in core business and strong sales volume along with solid benefits experience. The geographic expansion of UNM is paying off as acquired dental insurance businesses are growing in the United States and the U.K.
We believe strong operating results have led to a solid level of statutory earnings and capital, boosting financial flexibility. UNM has continually enhanced shareholders’ value. For the long term, it estimates premium from core business to increase 3-5%. UNM estimates 45-55% growth in adjusted operating EPS by 2024.
The forward P/E of Unum for the current financial year is 8.67X, lower than the industry average of 11.75X. It has a PEG ratio of 0.81, lower than the industry average of 1.49. The Zacks Consensus Estimate for current-year earnings has improved 1.7% over the last seven days.
MGM Resorts International (MGM - Free Report) is benefiting from increased business volume and travel activity, primarily at MGM China and Las Vegas Strip Resorts. The removal of COVID-related travel restrictions in Macau resulted in high contributions from the MGM China segment.
MGM Resorts is also planning to expand its footprint in New York. MGM is optimistic regarding BetMGM operations as it anticipates revenue contributions of $1.8 -$2 billion in 2023.
The forward P/E of MGM Resorts for the current financial year is 6.77X, lower than the industry average of 20.71X. It has a PEG ratio of 0.39, lower than the industry average of 2.12. The Zacks Consensus Estimate for current-year earnings has improved more than 100% over the last 30 days.
U.S. Silica Holdings Inc. (SLCA - Free Report) is likely to gain from expansions in the Permian Basin. The Sandbox and EP Minerals buyouts are also expected to make significant contributions. SLCA’s focus on increasing its footprint and product offerings in specialty end markets is also likely to boost margins.
The forward P/E of SLCA for the current financial year is 8.36X, lower than the industry average of 9.46X. It has a PEG ratio of 0.60, lower than the industry average of 2.17. The Zacks Consensus Estimate for current-year earnings has improved 16.1% over the last seven days.
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Top 5 Value Stocks to Buy Amid Recession Threats
We are in the middle of a volatile May after a solid April. Severe volatility that hit U.S. stock markets in early 2022, continued till the first quarter of this year. However, investors sailed smoothly in April as weakness in several key economic metric raised hope that the Fed would stop its interest rate hike regime anytime soon.
Volatility erupted in May following the fear of a recession in the U.S. economy later this year. In the past month, Wall Street remained rangebound on concerns stemming from the regional banking turmoil. In its recently concluded May FOMC meeting, the Fed raised the benchmark interest rate by 25 basis points to the range of 5-5.25%, making it the highest Fed Fund rate since August 2007.
Fed Chairman Jerome Powell indicated that the ongoing rate hike cycle is perhaps reaching its end, although it will depend on the outcome of economic data. The Fed Chair acknowledged that the current banking turmoil in the United States has led to tighter credit conditions, and is likely to impact economic activities.
In the first half of May, the large-cap centric Dow and S&P 500 indexes closed in negative territory. The mid-cap specific S&P 400 Index and the small-cap benchmark Russell 2000 also ended in a negative zone. The tech-heavy Nasdaq Composite is the sole index that managed to gain marginally in the same period.
At this stage, investors should be prepared to minimize fluctuations in their portfolio and consequently rebalance it with suitable financial assets to maintain stability. It would be prudent to pick value stocks with a favorable Zacks Rank to cushion the portfolio as well as make some gains from the upside potential. These stocks could prove to be valuable once the rally resumes.
Our Top Picks
We have narrowed our search to five value stocks. Each of our picks carries a Zacks Rank #1 (Strong Buy) and a Value Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research
General Motors Co. (GM - Free Report) has a compelling portfolio with strong demand for its quality full-size pickups and SUVs. GM’s hot-selling brands in America like Chevrolet Silverado, Equinox and GMC Sierra are driving the top line. We expect General Motors' total revenues to inch up 2.8% in 2023.
General Motors will have nine electric vehicle models in the North America market this year, which will buoy top-line growth. GM’s Ultium platform and battery plants in Ohio, Tennessee and Lansing are set to scale up its e-mobility prowess. GM’s strides in autonomous vehicle development also augur well for long-term growth.
The forward P/E of General Motors for the current financial year is 4.61X, lower than the industry average of 9.84X. It has a PEG ratio of 0.47, lower than the industry average of 1.20. The Zacks Consensus Estimate for current-year earnings has improved 2.1% over the last seven days.
United Airlines Holdings Inc. (UAL - Free Report) is seeing steady recovery in domestic and international air-travel demand. Owing to robust air-travel demand, UAL expects revenues for the June quarter to grow 14-16% year over year. Our second-quarter total revenue estimate indicates a 14.7% year-over-year increase.
For second-quarter 2023, United Airlines expects capacity to improve almost 18.5% from the year-ago reported figure. UAL's focus on cargo revenues is encouraging. UAL's fleet-upgrade efforts are commendable as well.
The forward P/E of United Airlines for the current financial year is 4.16X, lower than the industry average of 9.74X. It has a PEG ratio of 0.09, lower than the industry average of 0.28. The Zacks Consensus Estimate for current-year earnings has improved 6.3% over the last 30 days.
Unum Group’s (UNM - Free Report) conservative pricing and reservation practices have contributed to overall profitability. Sustained increase in premiums is being fueled by high persistency levels in core business and strong sales volume along with solid benefits experience. The geographic expansion of UNM is paying off as acquired dental insurance businesses are growing in the United States and the U.K.
We believe strong operating results have led to a solid level of statutory earnings and capital, boosting financial flexibility. UNM has continually enhanced shareholders’ value. For the long term, it estimates premium from core business to increase 3-5%. UNM estimates 45-55% growth in adjusted operating EPS by 2024.
The forward P/E of Unum for the current financial year is 8.67X, lower than the industry average of 11.75X. It has a PEG ratio of 0.81, lower than the industry average of 1.49. The Zacks Consensus Estimate for current-year earnings has improved 1.7% over the last seven days.
MGM Resorts International (MGM - Free Report) is benefiting from increased business volume and travel activity, primarily at MGM China and Las Vegas Strip Resorts. The removal of COVID-related travel restrictions in Macau resulted in high contributions from the MGM China segment.
MGM Resorts is also planning to expand its footprint in New York. MGM is optimistic regarding BetMGM operations as it anticipates revenue contributions of $1.8 -$2 billion in 2023.
The forward P/E of MGM Resorts for the current financial year is 6.77X, lower than the industry average of 20.71X. It has a PEG ratio of 0.39, lower than the industry average of 2.12. The Zacks Consensus Estimate for current-year earnings has improved more than 100% over the last 30 days.
U.S. Silica Holdings Inc. (SLCA - Free Report) is likely to gain from expansions in the Permian Basin. The Sandbox and EP Minerals buyouts are also expected to make significant contributions. SLCA’s focus on increasing its footprint and product offerings in specialty end markets is also likely to boost margins.
The forward P/E of SLCA for the current financial year is 8.36X, lower than the industry average of 9.46X. It has a PEG ratio of 0.60, lower than the industry average of 2.17. The Zacks Consensus Estimate for current-year earnings has improved 16.1% over the last seven days.