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Welcome to Episode #267 of the Value Investor Podcast.
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.
With so many new listeners to the Value Investor Podcast, Tracey decided to return back to the basics.
A value stock isn’t a value because it’s trading at $5. It’s a value because investors are getting its earnings for cheap.
What is the P/E Ratio?
The P/E ratio is often used by value investors as a basic screen. It is price of the stock divided by earnings.
The cheaper it is, the better. Most value investors look for a P/E of 15 or less.
A P/E o f 10 or less usually indicates a company is dirt cheap.
Screening for the P/E Ratio
Running a screen for the P/E ratio under 15 on Zacks.com, still gets you 793 stocks. That is too big of a list to be useful.
Adding the Zacks Rank of #1 (Strong Buy) or #2 (Buy) will get you companies with rising earnings estimates.
But that still gives a list of 199 stocks. That’s still a lot.
Lowering the P/E ratio all the way down to 7, which is dirt cheap, and including the Zacks Rank of #1 (Strong Buy), which is the top Zacks Rank, gets you 44 stocks.
MarineMax is the world’s largest recreational boat and yacht retailer. It has 79 retail locations.
Consumers are still taking to the water as MarineMax recently reported record fiscal Q1 results with revenue up 15% to $472 million. Gross margins also expanded to a record 35% in the quarter even with industry-wide supply chain challenges.
The analysts are bullish, with 4 raising fiscal 2022 estimates in the last week. Earnings are expected to rise 16.2% year-over-year.
Yet MarineMax shares have fallen nearly 20% year-to-date.
And now it’s dirt cheap, with a forward P/E of just 6.
Winnebago, the RV and boat manufacturer, recently showed an all-electric RV at the Florida Super Show.
5 estimates have been revised higher on Winnebago in the last 2 months pushing up the fiscal 2022 earnings consensus to $12.30 from $9.40 in that time period.
That’s earnings growth of 43% as Winnebago made just $8.55 the year before.
Winnebago is considered to be a pandemic winner as people wanted to be outdoors and wanted to hit the road. Sales of RVs have soared.
But the Street is getting nervous that this demand may fade.
Winnebago shares are down 10% year-to-date and are now dirt cheap, with a forward P/E of 5.5.
Is Winnebago a value trap or is it being overlooked?
Image: Bigstock
Back to Value Investing Basics: The P/E Ratio
Welcome to Episode #267 of the Value Investor Podcast.
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.
With so many new listeners to the Value Investor Podcast, Tracey decided to return back to the basics.
A value stock isn’t a value because it’s trading at $5. It’s a value because investors are getting its earnings for cheap.
What is the P/E Ratio?
The P/E ratio is often used by value investors as a basic screen. It is price of the stock divided by earnings.
The cheaper it is, the better. Most value investors look for a P/E of 15 or less.
A P/E o f 10 or less usually indicates a company is dirt cheap.
Screening for the P/E Ratio
Running a screen for the P/E ratio under 15 on Zacks.com, still gets you 793 stocks. That is too big of a list to be useful.
Adding the Zacks Rank of #1 (Strong Buy) or #2 (Buy) will get you companies with rising earnings estimates.
But that still gives a list of 199 stocks. That’s still a lot.
Lowering the P/E ratio all the way down to 7, which is dirt cheap, and including the Zacks Rank of #1 (Strong Buy), which is the top Zacks Rank, gets you 44 stocks.
5 Dirt Cheap Stocks with High Zacks Rank
1. BP (BP - Free Report)
BP is a big oil company. Earnings are expected to rise 22% in 2022 to $4.61 from $3.77 last year as crude hits $90.
Remember, the oil companies had a rough time in 2020 as earnings went negative.
BP is cheap, with a forward P/E of 6.9, even though shares are up 20% year-to-date.
Energy was the best performing sector in 2021.
Is BP too hot to handle after the 2021 rally?
2. Asbury Automotive Group (ABG - Free Report)
Asbury Automotive Group is an auto retailer. With both new and used auto demand sky-high during the pandemic, earnings have soared.
Asbury’s 2022 earnings are expected to jump another 16.6% to $29.83 from $25.58 in 2021.
These shares have been holding steady in 2022 as they’ve fallen just about 1% year-to-date after a big rally in 2021.
Yet, Asbury Automotive is still dirt cheap with a forward P/E of just 5.6.
Does Asbury Automotive Group have more room to run?
3. MarineMax, Inc. (HZO - Free Report)
MarineMax is the world’s largest recreational boat and yacht retailer. It has 79 retail locations.
Consumers are still taking to the water as MarineMax recently reported record fiscal Q1 results with revenue up 15% to $472 million. Gross margins also expanded to a record 35% in the quarter even with industry-wide supply chain challenges.
The analysts are bullish, with 4 raising fiscal 2022 estimates in the last week. Earnings are expected to rise 16.2% year-over-year.
Yet MarineMax shares have fallen nearly 20% year-to-date.
And now it’s dirt cheap, with a forward P/E of just 6.
Why is the Street selling off MarineMax shares?
4. Winnebago (WGO - Free Report)
Winnebago, the RV and boat manufacturer, recently showed an all-electric RV at the Florida Super Show.
5 estimates have been revised higher on Winnebago in the last 2 months pushing up the fiscal 2022 earnings consensus to $12.30 from $9.40 in that time period.
That’s earnings growth of 43% as Winnebago made just $8.55 the year before.
Winnebago is considered to be a pandemic winner as people wanted to be outdoors and wanted to hit the road. Sales of RVs have soared.
But the Street is getting nervous that this demand may fade.
Winnebago shares are down 10% year-to-date and are now dirt cheap, with a forward P/E of 5.5.
Is Winnebago a value trap or is it being overlooked?
5. Macy’s (M - Free Report)
Macy’s was one of the hot retail stocks last year as consumers began buying apparel again.
One estimate has been revised higher for next fiscal year in the last month, but fiscal 2023 earnings are expected to decline 16% next year.
Shares have fallen 11% over the last 3 months.
Macy’s has been cheap since the coronavirus hit and now trades at 6.4x.
Are the analysts being too bearish on Macy’s fiscal 2023 outlook?
What Else Do You Need to Know about the P/E Ratio and Value Investing Basics?
Tune into this week’s podcast to find out.