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Markets in Green Despite April Turmoil: 5 Value Picks
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U.S. stock markets have remained highly volatile so far in April. After a fabulous run throughout 2017, market fluctuations commenced in February and have only intensified as the year has progressed. A series of political issues, escalated by protectionist policies of President Trump, have taken a toll on the stock markets.
However, a closer look of the major indexes’ performances provides a silver lining. All the major indexes – Dow 30, S&P 500 and Nasdaq Composite – provided positive returns of 4%, 3.2% and 2.2%, respectively in the last one month. Both Dow 30 and S&P 500 are trading in the green with a return of 1.5% and 1.4%, respectively, so far in April. Only Nasdaq is in negative territory with a loss of a marginal 0.1%.
The abovementioned data is clear indication of the transitory nature of volatility plaguing the stock market. In fact, tech-heavy Nasdaq is likely to return to the positive once the tech behemoths start releasing their first-quarter earnings results. At this stage, investors will be better-off picking great value stocks to stabilize their portfolio returns.
Strong Economic Fundamentals
U.S. economy is on a strong footing as evidenced from several recently released macro-data. In the first quarter of 2018, the labor market added 202,000 jobs on an average per month, better than the comparable period of previous two years. The ISM index for national factory activity was recorded at 59.3 in March. Notably, a reading of more than 50 indicates that the sector is expanding. This reflects that the U.S. heavy industrial sector is forging ahead with a strong momentum.
On Apr 16, the U.S. Commerce Department reported retail sales growth of 0.6% for the month of March reversing the trend of decline in last three consecutive months. On Apr 17, the U.S. Federal Reserve’s measure for industrial production rose 0.5% in March. Moreover, capacity utilization rose 0.3% in March to reach 78.0. Notably, this March reading is the highest level in three years.
Robust Earnings Momentum
First-quarter earnings results have been exhibiting strong momentum so far. In fact, investors have pinned high hopes on first-quarter 2018 earnings. Total earnings of the S&P 500 index is expected to be up 18.3% from the same period last year backed by 7.7% year-over-year growth in revenues. (Read More: Positive Revenue Surprises Lag Previous Quarter Levels)
A big driver of these positive revisions is obviously the direct impact of the tax cuts. The corporate tax rate was recently lowered from 35% to 21%. Moreover, repatriation of income will be taxed 8% to 15.5%, instead of the current 35%.
Three Factors May Create Immediate Turmoil
Despite above mentioned positives, market volatility is likely to escalate due to three persisting factors.
First, any escalation of tariff related issues between the United States and China or any other country will reignite the fear of global trade war. The U.S. government recently banned the country’s semiconductor giants to sell chipset to Chinese state-owned telecom majors, paving the way for a likely Chinese retaliation.
Second, the 10-year Treasury Note yield reached 2.956% on Apr 20, its highest since January 2014. This fueled investor’s fear that inflationary pressure will be more than market expectation compelling the Fed to raise interest rate.
The U.S. unemployment rate remained at a 17-year low of 4.1% in March, while workers’ hourly wages rose 8 cents, or 0.3%, to $26.82. Moreover, Trump’s tariffs will raise general price levels. Both wage pressure and price pressure may bring back the fear of inflationary situation.
Third, investors have pinned high hopes on first-quarter 2018 earnings. These massive expectations may result into short-term market volatility. High investors’ expectation may result in lofty valuations of the U.S. stock market, which, if they fail to fructify may backfire.
Our Top Picks
The U.S. markets remain volatile so far in 2018. Trade related concerns, lower-than-expected earnings results and return of inflationary pressure will certainly cause more fluctuations at least in the short-term.
At this juncture, it will be a prudent decision to buy value stocks on the dip that could prove to be valuable finds once the rally resumes. Our selection is also backed by a good Zacks Value Score and a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Our research shows that stocks with a Value Style Score of A or B when combined with a Zacks Rank #1 or 2 (Buy) offer the best opportunities in the value-investing space. We have handpicked five stocks with a Zacks Rank #1 and a Value Score of A.
The chart below shows price performance of our five picks year to date.
Lam Research Corp. (LRCX - Free Report) enables its customers to shape the future of technology by providing market-leading equipment and services for semiconductor wafer processing.
Lam Research’s forward price-to-earnings ratio (P/E) for the current financial year (F1) is 10.94x, lower than the industry average of 12.76x. It has a PEG ratio of 0.62, lower than the industry average of 0.87.
Macy’s Inc. (M - Free Report) is one of the premier retailers of the United States, operating about 885 stores in 45 states, the District of Columbia, Guam and Puerto Rico.
Macy’s forward price-to-earnings ratio (P/E) for the current financial year (F1) is 8.26x, lower than the industry average of 11.80x. It has a PEG ratio of 0.97, lower than the industry average of 1.24.
United States Steel Corp. (X - Free Report) is an integrated steel producer with major production operations in the United States and Central Europe.
United States Steel’s forward price-to-earnings ratio (P/E) for the current financial year (F1) is 6.93x, lower than the industry average of 11.41x. It has a PEG ratio of 0.87, lower than the industry average of 0.93.
ArcelorMittal (MT - Free Report) is the world's leading steel and mining company.
ArcelorMittal’s forward price-to-earnings ratio (P/E) for the current financial year (F1) is 9.04x, lower than the industry average of 11.41x. It has a PEG ratio of 0.68, lower than the industry average of 0.93.
Western Digital Corp. (WDC - Free Report) provides a full portfolio of compelling, high-quality storage solutions with customer-focused innovation, high efficiency, flexibility and speed.
Western Digital’s forward price-to-earnings ratio (P/E) for the current financial year (F1) is 7.04x, lower than the industry average of 12.60x. It has a PEG ratio of 0.37, lower than the industry average of 0.90.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
Image: Bigstock
Markets in Green Despite April Turmoil: 5 Value Picks
U.S. stock markets have remained highly volatile so far in April. After a fabulous run throughout 2017, market fluctuations commenced in February and have only intensified as the year has progressed. A series of political issues, escalated by protectionist policies of President Trump, have taken a toll on the stock markets.
However, a closer look of the major indexes’ performances provides a silver lining. All the major indexes – Dow 30, S&P 500 and Nasdaq Composite – provided positive returns of 4%, 3.2% and 2.2%, respectively in the last one month. Both Dow 30 and S&P 500 are trading in the green with a return of 1.5% and 1.4%, respectively, so far in April. Only Nasdaq is in negative territory with a loss of a marginal 0.1%.
The abovementioned data is clear indication of the transitory nature of volatility plaguing the stock market. In fact, tech-heavy Nasdaq is likely to return to the positive once the tech behemoths start releasing their first-quarter earnings results. At this stage, investors will be better-off picking great value stocks to stabilize their portfolio returns.
Strong Economic Fundamentals
U.S. economy is on a strong footing as evidenced from several recently released macro-data. In the first quarter of 2018, the labor market added 202,000 jobs on an average per month, better than the comparable period of previous two years. The ISM index for national factory activity was recorded at 59.3 in March. Notably, a reading of more than 50 indicates that the sector is expanding. This reflects that the U.S. heavy industrial sector is forging ahead with a strong momentum.
On Apr 16, the U.S. Commerce Department reported retail sales growth of 0.6% for the month of March reversing the trend of decline in last three consecutive months. On Apr 17, the U.S. Federal Reserve’s measure for industrial production rose 0.5% in March. Moreover, capacity utilization rose 0.3% in March to reach 78.0. Notably, this March reading is the highest level in three years.
Robust Earnings Momentum
First-quarter earnings results have been exhibiting strong momentum so far. In fact, investors have pinned high hopes on first-quarter 2018 earnings. Total earnings of the S&P 500 index is expected to be up 18.3% from the same period last year backed by 7.7% year-over-year growth in revenues. (Read More: Positive Revenue Surprises Lag Previous Quarter Levels)
A big driver of these positive revisions is obviously the direct impact of the tax cuts. The corporate tax rate was recently lowered from 35% to 21%. Moreover, repatriation of income will be taxed 8% to 15.5%, instead of the current 35%.
Three Factors May Create Immediate Turmoil
Despite above mentioned positives, market volatility is likely to escalate due to three persisting factors.
First, any escalation of tariff related issues between the United States and China or any other country will reignite the fear of global trade war. The U.S. government recently banned the country’s semiconductor giants to sell chipset to Chinese state-owned telecom majors, paving the way for a likely Chinese retaliation.
Second, the 10-year Treasury Note yield reached 2.956% on Apr 20, its highest since January 2014. This fueled investor’s fear that inflationary pressure will be more than market expectation compelling the Fed to raise interest rate.
The U.S. unemployment rate remained at a 17-year low of 4.1% in March, while workers’ hourly wages rose 8 cents, or 0.3%, to $26.82. Moreover, Trump’s tariffs will raise general price levels. Both wage pressure and price pressure may bring back the fear of inflationary situation.
Third, investors have pinned high hopes on first-quarter 2018 earnings. These massive expectations may result into short-term market volatility. High investors’ expectation may result in lofty valuations of the U.S. stock market, which, if they fail to fructify may backfire.
Our Top Picks
The U.S. markets remain volatile so far in 2018. Trade related concerns, lower-than-expected earnings results and return of inflationary pressure will certainly cause more fluctuations at least in the short-term.
At this juncture, it will be a prudent decision to buy value stocks on the dip that could prove to be valuable finds once the rally resumes. Our selection is also backed by a good Zacks Value Score and a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Our research shows that stocks with a Value Style Score of A or B when combined with a Zacks Rank #1 or 2 (Buy) offer the best opportunities in the value-investing space. We have handpicked five stocks with a Zacks Rank #1 and a Value Score of A.
The chart below shows price performance of our five picks year to date.
Lam Research Corp. (LRCX - Free Report) enables its customers to shape the future of technology by providing market-leading equipment and services for semiconductor wafer processing.
Lam Research’s forward price-to-earnings ratio (P/E) for the current financial year (F1) is 10.94x, lower than the industry average of 12.76x. It has a PEG ratio of 0.62, lower than the industry average of 0.87.
Macy’s Inc. (M - Free Report) is one of the premier retailers of the United States, operating about 885 stores in 45 states, the District of Columbia, Guam and Puerto Rico.
Macy’s forward price-to-earnings ratio (P/E) for the current financial year (F1) is 8.26x, lower than the industry average of 11.80x. It has a PEG ratio of 0.97, lower than the industry average of 1.24.
United States Steel Corp. (X - Free Report) is an integrated steel producer with major production operations in the United States and Central Europe.
United States Steel’s forward price-to-earnings ratio (P/E) for the current financial year (F1) is 6.93x, lower than the industry average of 11.41x. It has a PEG ratio of 0.87, lower than the industry average of 0.93.
ArcelorMittal (MT - Free Report) is the world's leading steel and mining company.
ArcelorMittal’s forward price-to-earnings ratio (P/E) for the current financial year (F1) is 9.04x, lower than the industry average of 11.41x. It has a PEG ratio of 0.68, lower than the industry average of 0.93.
Western Digital Corp. (WDC - Free Report) provides a full portfolio of compelling, high-quality storage solutions with customer-focused innovation, high efficiency, flexibility and speed.
Western Digital’s forward price-to-earnings ratio (P/E) for the current financial year (F1) is 7.04x, lower than the industry average of 12.60x. It has a PEG ratio of 0.37, lower than the industry average of 0.90.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
See Them Free>>