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The Basics of Value Investing

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  • (1:45) - Value Investor Basic's
  • (9:30) - Screening For Stocks With Good P/E Ratios
  • (16:50) - Stock Screener And Tracey’s Top Stock Picks
  • (27:20) - Episode Roundup: AAPL, TSCO, ABG, AMWD, DHI, KR, FBC
  •     Podcast@Zacks.com

 

Welcome to Episode #199 of the Value Investor Podcast

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

With so many new investors, many are confused about what value investing is.

What is it?

And how do you find good value stocks?

The Definition of Value Investing

Value investing is buying cheap stocks. But “cheap” doesn’t mean share price.

Cheapness is usually determined by the price-to-earnings ratio (P/E). That is price divided by earnings. The lower it is, the cheaper the company.

Value stocks are also usually in an industry that Wall Street is ignoring. In 2020, think of the banks. They are all mostly cheap as Wall Street is avoiding them.

Screening for Value Stocks

Investors can use the P/E ratio to find cheap stocks, but if you only screen with that one metric, you will get over 1,000 stocks.

That’s where the Zacks Rank comes in handy. The Zacks Rank can narrow down the list of cheap stocks.

Screening for Zacks Rank #1 (Strong Buy) stocks, which is the highest of the Zacks Ranks, and a P/E ratio under 15, really narrowed down the list of stocks.

That screen gave just 77 stocks.

5 Value Stocks with Zacks Ranks of #1

1.       Asbury Automotive Group (ABG - Free Report) has a forward P/E of just 10.6. It recently reported record second quarter results as operating margin was a record 5.7%.

2.       American Woodmark (AMWD - Free Report) has seen its earnings estimates revised higher over the past 30 days. The cabinet maker is cheap, with a forward P/E of 12.8.

3.       DR Horton (DHI - Free Report) just posted a hot second quarter as consumers are out in droves buying new homes. Even as the shares have surged, they are still attractive with a forward P/E of 13.2.

4.       Kroger (KR - Free Report) is part of the cocoon at home companies. Many consumers are still reluctant to eat outside the home. The shares are still trading with a cheap valuation, with a forward P/E of 12.4.

5.       Flagstar Bancorp (FBC - Free Report) is a community bank in Michigan which also operates a national mortgage lending business. With record low mortgage rates, home buying has been hot despite the pandemic. In the second quarter, Flagstar reported its best quarter in the company’s history. Yet these shares are still dirt cheap with a forward P/E of 8.1.

What else do you need to know about how to value invest?

Find out this week’s podcast.

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