Wall Street sold stocks on Tuesday as it grows increasingly impatient with Washington and its inability to come together on a debt-ceiling deal. The S&P 500 dropped 1.1% yesterday, while and the Nasdaq dipped 1.3%. The benchmark was down around 0.9% and the tech-heavy index had fallen 1% through late-morning trading on Wednesday for similar reasons.

A debt-ceiling deal is almost certain to get done even though the negative headlines are seemingly never-ending because everyone involved understands what’s at stake. President Biden and House Speaker McCarthy have echoed this sentiment in recent days, yet still nothing concrete is done even as we race toward Janet Yellen’s June 1 default date.

Wall Street might keep shedding stocks until a deal is finally reached, especially following the strong run the market has already gone on this year. The earnings and interest rate picture have helped drive the comeback.

But the S&P 500 is approaching its 50-day moving average again. And some stocks could come under selling pressure even after a debt deal is reached if Wall Street decides to start taking winnings off the table ahead of what are traditionally quiet summers.

That said, long-term investors are often best served by staying exposed to the stock market at all times. Instead of chasing some of the tech stocks right now, investors might want to buy stocks that offer great value that have also experienced positive earnings estimate revisions recently.

Today we utilize a Zacks screen that helps investors find stocks that offer a combination of value and improving earnings outlooks as the stock market rally starts to slow again heading into June.

Screen Basics

The screen we are digging into today comes loaded with the Research Wizard and aims to short through highly-ranked Zacks stocks to find some of the top value names in the space.

This value-focused screen searches only for stocks that boast Zacks Rank #1 (Strong Buys) or #2 (Buys). It also focuses on stocks with price-to-earnings (P/E) ratios under the median for its industry. The screen also looks for stocks with price-to-sales (P/S) ratios under the median for its industry to help lock in relative value compared to its peers, since basing it off the wider market is not always the most useful tool.

The screen then digs into quarterly earnings rates above the median for its industry. This particular Zacks screen also uses a special blend of upgrades and estimates revisions to select the best seven stocks in this list.

The screen basics are listed below…

·       Only Zacks Rank #1 (Strong Buy) or #2 (Buy) Stocks

·       P/E (using 12-month EPS) - Under the Median for its Industry

·       P/S - Under the Median for its Industry

·       Percentage Change Act. EPS Q(0)/Q(-1)

·       Rating Change and Revisions Factors (to help narrow the list to the 7 best stocks in this list)

This strategy comes loaded with the Research Wizard and it is called bt_sow_value_method1. It can be found in the SoW (Screen of the Week) folder.

The screen is pretty simple, yet powerful. Here are two of the seven stocks that made it through this week's screen…

Green Brick Partners, Inc. ((GRBK Quick QuoteGRBK - Free Report) )

Green Brick Partners is a diversified homebuilding and land development company that operates in growth markets such as Texas, Georgia, and Florida—with exposure to Colorado as well. GRBK is in the midst of a stellar run of growth, with sales up from $291 million in 2015 all the way to $1.76 billion in 2022, driven by an extended stretch of roughly 25% or higher YoY revenue expansion.

Green Brick Partners posted blowout first quarter results in early May as it thrives even as the wider home market slows from its breakneck covid pace. Many housing markets such as Florida and  others remain remarkably strong, driven by megatrends in demographics. Demand from Millennial buyers, the largest generation in American history, is growing while the Baby Boomers are finally retiring and moving somewhere new. Plus, homebuilders didn’t overbuild during the covid boom.

Green Brick Partners delivered a record number of homes for any first quarter, with home closings revenue up 24% YoY, and it was able to sustain high margins. GRBK cancellation rate improved greatly vs. last quarter to 6.2%, which it said was the “lowest among public homebuilders.” This strength helped boost its backlog by a whopping 49% sequentially to $551 million.

Image Source: Zacks Investment Research

The Texas-based firm’s consensus earnings estimates for FY23 and FY24 have both soared by 53% since its first quarter release to help GRBK land a Zacks Rank #1 (Strong Buy). Green Brick Partners’ Real Estate – Development industry ranks in the top 30% of over 250 Zacks industries and it lands an overall “A” VGM grade. GRBK is also returning value to shareholders through buybacks.

Green Brick Partners stock is up 315% in the last five years vs. the S&P 500’s 50% and its industry’s 30% drop. GRBK’s strong performance includes a 110% surge in the past 12 months, boosted by a big post-release jump. Even though GRBK is trading near fresh 52-week highs, its valuation levels mark a 32% discount to its own five-year highs and not too far above its median at 8.6X forward 12-month earnings.

Wabash ((WNC Quick QuoteWNC - Free Report) )

Wabash’s offerings include connected solutions for the transportation, logistics, and distribution industries. WNC designs, manufactures, and services products such as dry freight and refrigerated trailers, tank trailers, dry and refrigerated truck bodies, trailer aerodynamic solutions, and much more.

Wabash topped our Q1 estimates in late April and provided upbeat guidance that’s moved its FY23 consensus EPS estimates 48% higher since its release and pushed its FY24 figure 16% higher. WNC’s improving bottom-line outlook helps it land a Zacks Rank #1 (Strong Buy) right now. The recent EPS positivity marks the extension of its upward earnings revisions trend that began in 2021. Wabash’s backlog jumped 31% YoY to an all-time first quarter record of $3.1 billion.

Image Source: Zacks Investment Research

Wabash posted back-to-back years of big sales and earnings growth, with Zacks estimates calling for another year of double-digit sales and earnings growth in 2023. And WNC said it remains optimistic about the near-term even in a slowing economy.

WNC has soared 55% in the last two years vs. its industry’s 35% drop, with shares up 64% in the last 12 months. Wabash stock has been on a bit more of a wild up-and-down ride over the past decade, but it is still up 130% compared to its industry’s 2% climb. On the valuation front, WNC is trading at around where it has been for most of the last 10 years and at a roughly 60% discount to its industry, which it has easily outperformed, at 6.3X forward earnings. And WNC pays a dividend that’s yielding roughly 1.3% at the moment.  

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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance/.