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“It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” – Warren Buffett
The strategy is quite simple – find stocks that are trading below their inherent worth. An investment decision based on the intrinsic value of stocks seems feasible in the given economic scenario. But before jumping to the strategy, let’s take a sneak peek at the economy.
Is All Well With the Economy?
After a brush with the rough tide caused by the sluggishness witnessed in emerging markets such as China and Brazil, and fears of challenging economic/political conditions in Europe post Brexit, the U.S. economy looks much steady now. A clear answer to this was the GDP growth of 1.1% registered in the second quarter of 2016, albeit a tad lower than the initial estimate of 1.2%, but still better than a 0.8% increase recorded in the first quarter.
Further, the Consumer Confidence Index rose to 101.1 in August from the July reading of 96.7, reaching its 11-month high. Per the Labor Department, the economy added 151,000 jobs in August. Although not spectacular, this points to growth. Additionally, we note that the unemployment rate is hovering around 4.9%.
Given an improving labor market and the gradual rise in wages, we expect consumer spending to improve. Consumer spending increased 4.4% in the second quarter from the previous estimate of 4.2%. This is the fastest pace of expansion the metric has experienced in nearly two years. The Commerce Department recently unveiled that consumer spending rose 0.3% in July, after advancing 0.5% in June.
Well, the above discussion raises optimism, but there are indicators that still cast a doubt over the health of the economy. The U.S. factory activity showed a contraction in August. The Institute for Supply Management (ISM) stated that the index of national factory activity fell to 49.4 in August from 52.6 in July. Moreover, the U.S. service-sector index also plunged to its lowest level in August in over six years. The ISM indicated that the non-manufacturing index dropped to 51.4 in August from 55.5 in July, recording the lowest reading since Feb 2010.
Will the Fed Go for a Rate Hike?
The tussle is still on among the Fed members over when to go for a rate hike, as the economic indicators are making things complicated for them to arrive at a decision. Industry experts believe that the Fed may go for an interest rate hike sometime in the year – if not in September, chances of which are slim – only after due consideration of the global as well as domestic economic climate.
Retail Sector Still Holds the Baton
The recent rebound in oil prices, improving labor market, increase in consumer spending and a gradual improvement in the housing market are signals that the economy is on a recovery mode, and undoubtedly the retail sector presents itself as a lucrative investment hub. And adding a few stocks from the space would be a prudent decision. So for now, how about being a wise investor and striking the right chord?
What’s the Optimum Strategy?
Investment in stocks based on a diligent value analysis is usually considered one of the best practices. In value investing, investors pick stocks that are cheap but fundamentally sound. So the chance of these stocks allowing investors to book profits is high when the market trends upward. Thus, for long-term investors, a look at the intrinsic value of a stock is always warranted. So what are the criteria to identify value stocks?
A value stock may have a high dividend yield, low price-to-book ratio, low price-to-earnings ratio or a low price-to-sales ratio. However, it might be difficult for one to look at each parameter and compare with the peer group for an analysis on whether the stock is attractive from the value perspective. To make the task easy, Zacks has designed the new Style Score System.
The attractiveness of a stock as an investment option is confirmed by its Value Style Score of “A” or “B”. Our research shows that stocks with Style Scores of “A” or “B” when combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy) offer the best upside potential.
5 Prominent Value Picks
We suggest investing in The Children's Place, Inc. (PLCE - Free Report) , specialty retailer of children's apparel, with a Value Score of “A”. The stock, with a long-term earnings growth rate of 10.3%, has enjoyed positive estimate revisions over the past 30 days. Moreover, it sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Urban Outfitters Inc. (URBN - Free Report) , with a Zacks Rank #1 and a long-term earnings growth rate of 15%, is another solid bet. This lifestyle specialty retail company has a Value Score of “A”. The Zacks Consensus Estimate too has trended upward over the past 30 days.
You can also count on J. C. Penney Company, Inc. , one of the nation’s largest apparel and home furnishings retailers, carrying a Zacks Rank #2 and a Value Score of “A”. The stock has been witnessing positive estimate revisions over the past 30 days and has a long-term earnings growth rate of 16%.
Another stock that investors may consider is Macy's, Inc. (M - Free Report) that carries a Zacks Rank #2 with a Value Score of “A”. This seller of a range of merchandise, including apparel and accessories, cosmetics, home furnishings, and other consumer goods has a long-term earnings growth rate of 8.5%. The company has also been witnessing solid earnings estimate revisions over the past 30 days.
Last but not the least is Nordstrom Inc. (JWN - Free Report) , with a Zacks Rank #2 and a Value Score of “A”. This fashion specialty retailer has a long-term earnings growth rate of 9.7%. The Zacks Consensus Estimate too has been on an uptrend over the past 30 days.
Bottom Line
Investors can confidently end their search at stocks with a better Zacks Rank status of either #1 or #2, which encompasses its strong fundamentals, promises price movement and highlights analysts’ constructive view on the same via positive estimate revisions. As we know, a sturdy portfolio always gives favorable returns.
Confidential: Zacks' Best Investment Ideas
Would you like to see a hand-picked ""all-star"" selection of investment ideas from the man who heads up Zacks' trading and investing services? Steve Reitmeister knows when key trades are about to be triggered and which of our experts has the hottest hand. Click for his selected trades right now >>
Unique Zacks Analysis of Your Chosen Ticker
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5 Retail Stocks with Great Value Prospects
“It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” – Warren Buffett
The strategy is quite simple – find stocks that are trading below their inherent worth. An investment decision based on the intrinsic value of stocks seems feasible in the given economic scenario. But before jumping to the strategy, let’s take a sneak peek at the economy.
Is All Well With the Economy?
After a brush with the rough tide caused by the sluggishness witnessed in emerging markets such as China and Brazil, and fears of challenging economic/political conditions in Europe post Brexit, the U.S. economy looks much steady now. A clear answer to this was the GDP growth of 1.1% registered in the second quarter of 2016, albeit a tad lower than the initial estimate of 1.2%, but still better than a 0.8% increase recorded in the first quarter.
Further, the Consumer Confidence Index rose to 101.1 in August from the July reading of 96.7, reaching its 11-month high. Per the Labor Department, the economy added 151,000 jobs in August. Although not spectacular, this points to growth. Additionally, we note that the unemployment rate is hovering around 4.9%.
Given an improving labor market and the gradual rise in wages, we expect consumer spending to improve. Consumer spending increased 4.4% in the second quarter from the previous estimate of 4.2%. This is the fastest pace of expansion the metric has experienced in nearly two years. The Commerce Department recently unveiled that consumer spending rose 0.3% in July, after advancing 0.5% in June.
Well, the above discussion raises optimism, but there are indicators that still cast a doubt over the health of the economy. The U.S. factory activity showed a contraction in August. The Institute for Supply Management (ISM) stated that the index of national factory activity fell to 49.4 in August from 52.6 in July. Moreover, the U.S. service-sector index also plunged to its lowest level in August in over six years. The ISM indicated that the non-manufacturing index dropped to 51.4 in August from 55.5 in July, recording the lowest reading since Feb 2010.
Will the Fed Go for a Rate Hike?
The tussle is still on among the Fed members over when to go for a rate hike, as the economic indicators are making things complicated for them to arrive at a decision. Industry experts believe that the Fed may go for an interest rate hike sometime in the year – if not in September, chances of which are slim – only after due consideration of the global as well as domestic economic climate.
Retail Sector Still Holds the Baton
The recent rebound in oil prices, improving labor market, increase in consumer spending and a gradual improvement in the housing market are signals that the economy is on a recovery mode, and undoubtedly the retail sector presents itself as a lucrative investment hub. And adding a few stocks from the space would be a prudent decision. So for now, how about being a wise investor and striking the right chord?
What’s the Optimum Strategy?
Investment in stocks based on a diligent value analysis is usually considered one of the best practices. In value investing, investors pick stocks that are cheap but fundamentally sound. So the chance of these stocks allowing investors to book profits is high when the market trends upward. Thus, for long-term investors, a look at the intrinsic value of a stock is always warranted. So what are the criteria to identify value stocks?
A value stock may have a high dividend yield, low price-to-book ratio, low price-to-earnings ratio or a low price-to-sales ratio. However, it might be difficult for one to look at each parameter and compare with the peer group for an analysis on whether the stock is attractive from the value perspective. To make the task easy, Zacks has designed the new Style Score System.
The attractiveness of a stock as an investment option is confirmed by its Value Style Score of “A” or “B”. Our research shows that stocks with Style Scores of “A” or “B” when combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy) offer the best upside potential.
5 Prominent Value Picks
We suggest investing in The Children's Place, Inc. (PLCE - Free Report) , specialty retailer of children's apparel, with a Value Score of “A”. The stock, with a long-term earnings growth rate of 10.3%, has enjoyed positive estimate revisions over the past 30 days. Moreover, it sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Urban Outfitters Inc. (URBN - Free Report) , with a Zacks Rank #1 and a long-term earnings growth rate of 15%, is another solid bet. This lifestyle specialty retail company has a Value Score of “A”. The Zacks Consensus Estimate too has trended upward over the past 30 days.
You can also count on J. C. Penney Company, Inc. , one of the nation’s largest apparel and home furnishings retailers, carrying a Zacks Rank #2 and a Value Score of “A”. The stock has been witnessing positive estimate revisions over the past 30 days and has a long-term earnings growth rate of 16%.
Another stock that investors may consider is Macy's, Inc. (M - Free Report) that carries a Zacks Rank #2 with a Value Score of “A”. This seller of a range of merchandise, including apparel and accessories, cosmetics, home furnishings, and other consumer goods has a long-term earnings growth rate of 8.5%. The company has also been witnessing solid earnings estimate revisions over the past 30 days.
Last but not the least is Nordstrom Inc. (JWN - Free Report) , with a Zacks Rank #2 and a Value Score of “A”. This fashion specialty retailer has a long-term earnings growth rate of 9.7%. The Zacks Consensus Estimate too has been on an uptrend over the past 30 days.
Bottom Line
Investors can confidently end their search at stocks with a better Zacks Rank status of either #1 or #2, which encompasses its strong fundamentals, promises price movement and highlights analysts’ constructive view on the same via positive estimate revisions. As we know, a sturdy portfolio always gives favorable returns.
Confidential: Zacks' Best Investment Ideas
Would you like to see a hand-picked ""all-star"" selection of investment ideas from the man who heads up Zacks' trading and investing services? Steve Reitmeister knows when key trades are about to be triggered and which of our experts has the hottest hand. Click for his selected trades right now >>