Welcome to Episode #31 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.
Recently, she’s been having some Twitter and Stocktwits “discussions” with investors about what makes a cheap stock.
Just because a stock has dropped big, even if it’s fallen 50% or more, that doesn’t mean a stock is necessarily “cheap” or a “value.” Certainly, that scenario is one that a value investor would want to investigate further.
Tracey has covered value traps on the podcast before but this week she turns to its devious cousin: the cyclical stock.
Companies are known as cyclicals when their earnings rise and fall with the mood of the economy.
So, for example, a luxury automaker, a motorcycle manufacturer and homebuilders are likely cyclical as their earnings rise when the economy is good and consumers feel bullish enough to buy that new car or new house and their earnings fall when there is a recession.
Cyclical stocks can appear to be cheap, especially when earnings are just starting to decline.
Trinity Industries Isn’t a Value
A good example of this right now are the railcar manufacturers, Trinity Industries (TRN - Free Report) and Greenbrier (GBX - Free Report) .
In 2016, Trinity looked cheap, as it earned $2.25. But earnings are on the decline due to a cyclical drop in rail car orders that will likely last several years.
In 2017, the Zacks Consensus is calling for $1.30. With shares near $30, and the slide in earnings, suddenly Trinity went from having a P/E of around 13 to having one around 26. It’s obviously not cheap any longer.
How do you avoid the cyclicals?
Keep an eye on earnings estimates. What direction are the estimates moving? If they were going up for years but now are on the decline for years, that’s a red flag.
The Trinity chart is a perfect illustration of a cyclical. This what you don’t want to be buying- at least not before the bottom of the cycle has been hit.
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
Welcome to Episode #31 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.
Recently, she’s been having some Twitter and Stocktwits “discussions” with investors about what makes a cheap stock.
Just because a stock has dropped big, even if it’s fallen 50% or more, that doesn’t mean a stock is necessarily “cheap” or a “value.” Certainly, that scenario is one that a value investor would want to investigate further.
Tracey has covered value traps on the podcast before but this week she turns to its devious cousin: the cyclical stock.
Companies are known as cyclicals when their earnings rise and fall with the mood of the economy.
So, for example, a luxury automaker, a motorcycle manufacturer and homebuilders are likely cyclical as their earnings rise when the economy is good and consumers feel bullish enough to buy that new car or new house and their earnings fall when there is a recession.
Cyclical stocks can appear to be cheap, especially when earnings are just starting to decline.
Trinity Industries Isn’t a Value
A good example of this right now are the railcar manufacturers, Trinity Industries (TRN - Free Report) and Greenbrier (GBX - Free Report) .
In 2016, Trinity looked cheap, as it earned $2.25. But earnings are on the decline due to a cyclical drop in rail car orders that will likely last several years.
In 2017, the Zacks Consensus is calling for $1.30. With shares near $30, and the slide in earnings, suddenly Trinity went from having a P/E of around 13 to having one around 26. It’s obviously not cheap any longer.
How do you avoid the cyclicals?
Keep an eye on earnings estimates. What direction are the estimates moving? If they were going up for years but now are on the decline for years, that’s a red flag.
The Trinity chart is a perfect illustration of a cyclical. This what you don’t want to be buying- at least not before the bottom of the cycle has been hit.
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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