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4 Top Value Stocks to Invest In as the Market Faces Volatility
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Wall Street began the trading week on a volatile note, as inflation concerns and external pressure unsettled the stock market. Escalating geopolitical tensions, apprehensions related to Hurricane Milton and the heated presidential election season caught investors off guard. Moreover, last week’s strong jobs report has tempered hopes of another significant interest rate cut by the Federal Reserve.
Major indices suffered broad declines on Monday. The Dow Jones Industrial Average dropped 0.9%, or 398.51 points, closing at 41,954.24. The S&P 500 slipped 1% to 5,695.94, while the Nasdaq Composite lost 1.2% to settle at 17,923.90. The surge in oil prices, driven by ongoing conflicts in the Middle East, also spooked the market.
Monday’s market struggles underscore the broader uncertainty facing investors. In this environment, value stocks stand out as a compelling investment option. Trading below their intrinsic value, these stocks offer a margin of safety during market fluctuations.
When evaluating value stocks, one of the most effective valuation metrics is the Price to Cash Flow (P/CF) ratio. Companies like JD.com, Inc. (JD - Free Report) , EnerSys (ENS - Free Report) , AXIS Capital Holdings Limited (AXS - Free Report) and Pebblebrook Hotel Trust (PEB - Free Report) boast a low P/CF ratio. The P/CF ratio evaluates the market price of a stock relative to the amount of cash flow that the company is generating on a per-share basis — the lower the number, the better.
Price to Cash Flow Reflects Financial Health
You must be wondering why we consider the P/CF valuation metric when the most widely used valuation metric is Price/Earnings (or P/E). An important factor that makes P/CF a highly dependable metric is that operating cash flow adds back non-cash charges such as depreciation and amortization to net income, truly diagnosing a company’s financial health.
Analysts caution that a company’s earnings are subject to accounting estimates and management manipulation. Then again, cash flow is quite reliable. Net cash flow unveils how much money a company generates and how effectively management is deploying the same.
A positive cash flow indicates an increase in the company’s liquid assets. This gives the company the means to settle debt, meet its expenses, reinvest in the business, endure downturns and finally undertake shareholder-friendly moves. Negative cash flow implies a decline in the company’s liquidity, which, in turn, lowers its flexibility to support these endeavors.
What’s the Best Value Investing Strategy?
An investment decision based solely on the P/CF metric may not yield the desired results. To identify stocks that are trading at a discount, you should expand your search criteria and also consider the price-to-book ratio, price-to-earnings ratio, and price-to-sales ratio. Adding a favorable Zacks Rank and a Value Score of A or B to your search criteria should lead to even better results as these eliminate the chance of falling into a value trap.
Here are the parameters for selecting true-value stocks:
P/CF less than or equal to X-Industry Median.
Price greater than or equal to 5: The stocks must all be trading at a minimum of $5 or higher.
Average 20-Day Volume greater than 100,000: A substantial trading volume ensures that the stock is easily tradable.
P/E using (F1) less than or equal to X-Industry Median: This parameter shortlists stocks that are trading at a discount or are equal to their peers.
P/B less than or equal to X-Industry Median: A lower P/B compared with the industry average implies that there is enough room for the stock to gain.
P/S less than or equal to X-Industry Median: The P/S ratio determines how a stock price compares to the company’s sales — the lower the ratio the more attractive the stock is.
PEG less than 1: The ratio is used to determine a stock's value by taking the company's earnings growth into account. The PEG ratio gives a more complete picture than the P/E ratio. A value of less than 1 indicates that the stock is undervalued and that investors need to pay less for a stock that has robust earnings growth prospects.
Zacks Rank less than or equal to 2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform irrespective of the market environment.
Value Score of less than or equal to B: Our research shows that stocks with a Style Score of A or B when combined with a Zacks Rank #1 or 2 offer the best upside potential.
Here are four of the eight low P/CF stocks that qualified the screening:
JD.com, a leading supply chain-based technology and service provider, sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 24%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for JD’s current financial year sales and earnings per share (EPS) suggests growth of 4.1% and 27.6%, respectively, from the year-ago period. JD has a Value Score of A. Shares of JD have surged 61% in the past year.
EnerSys, the global leader in stored energy solutions for industrial applications, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 1.5%, on average.
The Zacks Consensus Estimate for EnerSys’ current financial year sales and EPS suggests growth of 4.7% and 7.1%, respectively, from the year-ago period. ENS has a Value Score of A. Shares of ENS have increased 7.3% in the past year.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
AXIS Capital Holdings, a global specialty underwriter and provider of insurance and reinsurance solutions, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 94.6%, on average.
The Zacks Consensus Estimate for AXIS Capital’s current financial year sales and EPS suggests growth of 7.2% and 8.7%, respectively, from the year-ago period. AXS has a Value Score of A. The stock has advanced 39% in the past year.
Pebblebrook Hotel Trust, a publicly traded real estate investment trust and the largest owner of urban and resort lifestyle hotels in the United States, carries a Zacks Rank #2. The company delivered a trailing four-quarter earnings surprise of 23.3%, on average.
The Zacks Consensus Estimate for Pebblebrook’s current financial year sales and EPS suggests growth of 2.9% and 2.5%, respectively, from the year-ago period. Pebblebrook has a Value Score of A. Shares of PB have declined 3.2% in the past year.
You can get the rest of the stock on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and backtest them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
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4 Top Value Stocks to Invest In as the Market Faces Volatility
Wall Street began the trading week on a volatile note, as inflation concerns and external pressure unsettled the stock market. Escalating geopolitical tensions, apprehensions related to Hurricane Milton and the heated presidential election season caught investors off guard. Moreover, last week’s strong jobs report has tempered hopes of another significant interest rate cut by the Federal Reserve.
Major indices suffered broad declines on Monday. The Dow Jones Industrial Average dropped 0.9%, or 398.51 points, closing at 41,954.24. The S&P 500 slipped 1% to 5,695.94, while the Nasdaq Composite lost 1.2% to settle at 17,923.90. The surge in oil prices, driven by ongoing conflicts in the Middle East, also spooked the market.
Monday’s market struggles underscore the broader uncertainty facing investors. In this environment, value stocks stand out as a compelling investment option. Trading below their intrinsic value, these stocks offer a margin of safety during market fluctuations.
When evaluating value stocks, one of the most effective valuation metrics is the Price to Cash Flow (P/CF) ratio. Companies like JD.com, Inc. (JD - Free Report) , EnerSys (ENS - Free Report) , AXIS Capital Holdings Limited (AXS - Free Report) and Pebblebrook Hotel Trust (PEB - Free Report) boast a low P/CF ratio. The P/CF ratio evaluates the market price of a stock relative to the amount of cash flow that the company is generating on a per-share basis — the lower the number, the better.
Price to Cash Flow Reflects Financial Health
You must be wondering why we consider the P/CF valuation metric when the most widely used valuation metric is Price/Earnings (or P/E). An important factor that makes P/CF a highly dependable metric is that operating cash flow adds back non-cash charges such as depreciation and amortization to net income, truly diagnosing a company’s financial health.
Analysts caution that a company’s earnings are subject to accounting estimates and management manipulation. Then again, cash flow is quite reliable. Net cash flow unveils how much money a company generates and how effectively management is deploying the same.
A positive cash flow indicates an increase in the company’s liquid assets. This gives the company the means to settle debt, meet its expenses, reinvest in the business, endure downturns and finally undertake shareholder-friendly moves. Negative cash flow implies a decline in the company’s liquidity, which, in turn, lowers its flexibility to support these endeavors.
What’s the Best Value Investing Strategy?
An investment decision based solely on the P/CF metric may not yield the desired results. To identify stocks that are trading at a discount, you should expand your search criteria and also consider the price-to-book ratio, price-to-earnings ratio, and price-to-sales ratio. Adding a favorable Zacks Rank and a Value Score of A or B to your search criteria should lead to even better results as these eliminate the chance of falling into a value trap.
Here are the parameters for selecting true-value stocks:
P/CF less than or equal to X-Industry Median.
Price greater than or equal to 5: The stocks must all be trading at a minimum of $5 or higher.
Average 20-Day Volume greater than 100,000: A substantial trading volume ensures that the stock is easily tradable.
P/E using (F1) less than or equal to X-Industry Median: This parameter shortlists stocks that are trading at a discount or are equal to their peers.
P/B less than or equal to X-Industry Median: A lower P/B compared with the industry average implies that there is enough room for the stock to gain.
P/S less than or equal to X-Industry Median: The P/S ratio determines how a stock price compares to the company’s sales — the lower the ratio the more attractive the stock is.
PEG less than 1: The ratio is used to determine a stock's value by taking the company's earnings growth into account. The PEG ratio gives a more complete picture than the P/E ratio. A value of less than 1 indicates that the stock is undervalued and that investors need to pay less for a stock that has robust earnings growth prospects.
Zacks Rank less than or equal to 2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform irrespective of the market environment.
Value Score of less than or equal to B: Our research shows that stocks with a Style Score of A or B when combined with a Zacks Rank #1 or 2 offer the best upside potential.
Here are four of the eight low P/CF stocks that qualified the screening:
JD.com, a leading supply chain-based technology and service provider, sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 24%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for JD’s current financial year sales and earnings per share (EPS) suggests growth of 4.1% and 27.6%, respectively, from the year-ago period. JD has a Value Score of A. Shares of JD have surged 61% in the past year.
EnerSys, the global leader in stored energy solutions for industrial applications, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 1.5%, on average.
The Zacks Consensus Estimate for EnerSys’ current financial year sales and EPS suggests growth of 4.7% and 7.1%, respectively, from the year-ago period. ENS has a Value Score of A. Shares of ENS have increased 7.3% in the past year.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
AXIS Capital Holdings, a global specialty underwriter and provider of insurance and reinsurance solutions, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 94.6%, on average.
The Zacks Consensus Estimate for AXIS Capital’s current financial year sales and EPS suggests growth of 7.2% and 8.7%, respectively, from the year-ago period. AXS has a Value Score of A. The stock has advanced 39% in the past year.
Pebblebrook Hotel Trust, a publicly traded real estate investment trust and the largest owner of urban and resort lifestyle hotels in the United States, carries a Zacks Rank #2. The company delivered a trailing four-quarter earnings surprise of 23.3%, on average.
The Zacks Consensus Estimate for Pebblebrook’s current financial year sales and EPS suggests growth of 2.9% and 2.5%, respectively, from the year-ago period. Pebblebrook has a Value Score of A. Shares of PB have declined 3.2% in the past year.
You can get the rest of the stock on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and backtest them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.