Every few days we have this argument about the pros and cons of value investing and whether it makes sense to pursue this approach in the current scenario.
Value investing is essentially about selecting stocks that have good things going for them at a time when they have been beaten down by some external factor, such as the pandemic. You buy and hold these stocks for the long term (at least 5-10 years), ignoring the ups and downs of daily trade as these stocks keep appreciating in value. It’s also beneficial in that it reduces transaction costs (from repeat trading) and lowers tax liability (anything you hold longer than a year attracts a lower rate).
At times, there are stocks you’re itching to get your hands on and this unforeseen event that hit the market gives you the opportunity. That’s how many people were able to use the March lows to load up on names they believe in that they were avoiding on valuation considerations.
Now, with the largest chunk of second quarter results in, it’s clear that analyst estimates were overly conservative and most companies didn’t do half as bad as predicted. So naturally, there were huge beats followed by corrections to estimates. This has led to increased optimism that is at times ignoring the fact that many companies are still citing continued uncertainties as a reason for withholding annual guidance. Another point that shouldn’t be ignored is the government stimulus, which has artificially propped up demand. We really don’t know how this thing will play out after the whole economy returns to normal (whatever that turns out to be).
So the question then arises about whether value opportunities continue to exist in this environment and whether it’s safe to take a buy-and-hold approach when everything is beginning to look kind of expensive.
For sure, we must take a cautious approach, but it’s a very big market with very many companies in play, so there’s always an opportunity if we look hard enough. Just take a look at the following stocks-
AllianceBernstein Holding L.P. (AB - Free Report)
AllianceBernstein provides diversified investment management services, primarily to pension funds, endowments, foreign financial institutions and individual investors.
AB shares carry a Zacks Rank #2 and Zacks Value Score A. The company operates in the Financial - Investment Management industry, which is in the top 21% of 250+ Zacks-classified industries.
In the June quarter, it missed estimates by a penny but stronger expectations for the future pushed up the Zacks Consensus Estimates for 2020 and 2021 by 5.7% and 6.7%, respectively.
AllianceBernstein is expected to grow earnings by 3.6% in 2020 on the back of revenue growth of 2.6%. In 2021, earnings are currently expected to grow 9.2% on 9.3% higher revenues.
Its dividend yields 8.69%.
Valuation: The company is currently trading at a price to forward 12 months’ earnings multiple of 10.25X, which is slightly below its median value of 10.59X for the past year while the S&P 500 continues to trade at its annual high. Therefore considering its expected growth trends and the quality of earnings, these shares are worth buying.
PBF Logistics LP (PBFX - Free Report)
PBF Logistics owns, leases, operates, develops and acquires terminals, pipelines, storage facilities and other logistics assets for crude oil and refined petroleum products.
PBF shares carry a Zacks Rank #2 and Zacks Value Score A. PBF operates in the Oil and Gas - Production Pipeline – MLB industry, which is in the bottom 33% of more than 250 Zacks-classified industries.
It reported an earnings beat of 20% in the June quarter, after which 2020 and 2021 earnings estimates increased 7.8% and 2.9%, respectively.
PBF is expected to generate earnings growth of 11.6% on revenue that’s expected to grow 6.6% in 2020. In the following year, earnings are expected to decline slightly (while remaining above 2019 levels) on flattish revenue growth. If current year estimates are met, there are strong chances of upward revisions for 2021. That seems to be good reason for optimism.
Its dividend yields 11.07%.
Valuation: The real test is of course the valuation, where PBF’s current P/E of 5.04X significantly lags its median value of 9.62X over the past year. So this seems to be a good time to invest in the stock.
Tyson Foods, Inc. (TSN - Free Report)
The largest producer of chicken in the U.S., Tyson Foods also sells beef, pork and prepared variations of these. Its most important distribution channels include grocery retailers, grocery wholesalers, meat distributors, military commissaries, industrial food processing companies, chain restaurants, international export companies and domestic distributors.
The shares carry a Zacks Rank #1 and Zacks Value Score A. Tyson operates in the Food - Meat Products industry, which is in the top 49% of 250+ Zacks-classified industries.
Tyson beat June quarter estimates by 55.6%, after which 2020 and 2021 estimates jumped 8.1% and 2.0%.
The company will not be able to match 2019 earnings levels this year because social distancing and other health measures will increase the cost of operation. However, demand is likely to remain strong, which is why it’s expected to see a slight revenue increase this year ending in September. Both revenue and earnings are expected to grow in fiscal 2021, exceeding 2019 levels.
Tyson also pays a dividend that yields 2.68%.
Valuation: The company is trading at 12.05X, close to its median P/E value of 12.18. So this seems to be as good a time as any to get into the stock.
Systemax Inc. (SYX - Free Report)
Systemax is a direct marketer of brand name and private label products, including PCs, notebooks, computer-related products and industrial products in North America and Europe. The company assembles its own PCs and sells them under the trademarks Systemax, Tiger and Ultra. It also sells computers manufactured by other leading companies.
Systemax shares carry a Zacks Rank #2 and Zacks Value Score A. The company operates in the Retail - Consumer Electronics industry, which is in the top 11% of Zacks-classified industries.
Its earnings for the June quarter came in 42.9% higher than estimated, following which the Zacks Consensus Estimate for 2020 and 2021 moved up a respective 21.8% and 15.4%.
The new 2020 estimate is still 3.6% below 2019 levels although actual results can be higher since the fiscal year doesn’t end until December. Revenue growth is expected to be 2.6%. 2021 earnings are currently expected to grow 11.9%, above 2019 levels and on 3.0% higher revenue.
Its dividend yields 2.39%.
Valuation: Its current P/E of 16.15X is below the median level of 16.54X suggesting that the shares are undervalued.
TEGNA Inc. (TGNA - Free Report)
TEGNA has evolved as one of the largest U.S. broadcasting groups and a leading local news and media provider thanks to a plethora of acquisitions. In 2019 alone, the company completed four acquisitions for a total purchase price of $1.5 billion. It currently operates 62 television stations in 51 U.S. markets, catering to 39% of TV households in the U.S. TEGNA TV stations reach 50 million regular TV customers and about 35 million digital customers each month.
TEGNA’s shares carry a Zacks Rank #1 and Value Score B. It belongs in the Broadcast Radio and Television industry, which is in the bottom 25% of 250+ Zacks-classified industries.
The company’s June quarter earnings met estimates, after which the Zacks Consensus Estimate for 2020 and 2021 moved up 3.2% and 5.6%, respectively.
2020 earnings are expected to grow 16.7% from 2019 on revenue that will grow 18.0%.
Its dividend yields 2.35%.
Valuation: Its current P/E of 7.53X is below the median level of 7.85X suggesting that the shares are undervalued.
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