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Stocks with the Rare Combination of Value and Momentum

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  • (0:35) - Finding Value In Stocks At 52 Week Highs
  • (2:50) - Top 3 Stock Picks
  • (6:35) - Value Investor Portfolio: Zacks.com/Value
  • (9:40) - Don't Reject Value Stocks Because of Momentum
  • (11:00) - Stock Ticker Recap
  • Podcast@zacks.com
  • www.zacks.com/value

Welcome to Episode #37 of the Value Investor Podcast

Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio service, shares some of her top value investing tips and stock picks.

Value stocks aren’t necessarily stocks that have sold off or have been beaten down for some reason.

There exists a rare creature called the value stock that has momentum. These are stocks that are cheap fundamentally but that are trading near their 52-week highs.

How could that be?

There are 2 ways a value stock can get momentum:

1.      The stock is so out of favor that nearly all investors give up on it. The stock will get dirt cheap but eventually things will turn around and it will move higher again. Valuations will stay cheap for quite some time, however.  A good example of these stocks right now are the fertilizer stocks, although they haven’t yet turned around.

2.     A second way that value stocks can get momentum is when the earnings estimates are rising. Something good is going on in that company’s business so even as the stock rises, the earnings are rising with it too keeping the P/E ratio at a reasonable level.

Tracey ran a screen for value stocks that are near their 52-week high and found a bunch of stocks that fit into the second scenario. Earnings are rising so the shares are still cheap.

Here are her three top picks for this week.

3 Value Stocks with Momentum

1.      United Rentals (URI - Free Report) is one of the largest rental equipment dealers in North America. Even without an infrastructure bill, earnings are expected to spike in 2017 and 2018. It trades with a forward P/E of just 13.4. (Tracey owns it in her personal portfolio.)

2.      Micron Technology (MU - Free Report) is a semiconductor maker. That industry has been hot for months as demand for chips remains high. Earnings are exploding to the upside this year and next. Yet the shares are dirt cheap, trading with a forward P/E of just 7.8.

3.      Principal Financial Group (PFG - Free Report) is an investment management company based in Iowa. It’s steadily growing earnings and analysts are bullish on the first quarter, with 2 estimates rising in the last week. It’s a value with a forward P/E of only 12.7. And you get a dividend which is currently yielding 2.9%.

It may seem scary to value investors to buy when stocks are at new 52-week highs. Value investors are used to buying them when they’re down on their luck, not when they’re soaring.

But rising earnings estimates, and solid P/Es, means value investors should definitely be taking a look.

What else should value investors know about buying momentum?

Tune into this week’s podcast to find out.

Want more value investing insights from Tracey?

Check out her weekly Value Investor service to receive more in-depth analysis on value companies and see which stocks Tracey thinks are the best bargains now.

It holds between 20 and 25 value stocks for the long haul.

Click here to learn more.


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Micron Technology, Inc. (MU) - free report >>

Principal Financial Group, Inc. (PFG) - free report >>

United Rentals, Inc. (URI) - free report >>