The U.S. stock market had a superb run in the third quarter, with growth stocks stealing the limelight. Mega-cap growth stocks, predominantly the high-flying tech players like Apple and Amazon, advanced by leaps and bounds in the said quarter and are now on track to register their best year in a while. It’s worth pointing out that business conditions during the July-September quarter amid the pandemic favored tech stocks. Growth stocks, especially tech, soared amid a low interest rate environment and plummeting bond yields.
In the third quarter, growth stocks outperformed value stocks by a considerable margin. But if we just look at the month of September, investors turned their back to fast-growing tech stocks and instead focused on cyclical sectors like consumer discretionary, industrials, materials and financials, which by the way make up the value category. So, we can easily say that a rotation had begun from growth to value. This is because the broader market is now exposed to considerable volatility with the presidential election approaching. First, it’s a tightly contested election and we don’t have a clear winner in the exit polls. Second, the need of the hour is additional stimulus measures to pep up the economy but the process is getting delayed with the elections just around the corner. And we don’t expect much from the Fed as it has already used whatever was there in its arsenal to stimulate the economy.
And with gyration in the markets, value stocks no doubt are preferred choices for investors. After all, these companies are big, have established business models and are unperturbed by market volatility. What’s more, these are already trading at a bargain price and won’t burn a hole in your pocket. Interestingly, value stocks have more room to run whenever economic activity picks up. The U.S. economy, in fact, has started to show signs of recovery, albeit a slow pace. Despite the pandemic, the manufacturing and service side of the economy expanded in the third quarter, with consumers showing enough optimism on future business prospects, labor market conditions and overall economic outlook last month (read more:
US Consumers Gain Confidence in Economy: 5 Winners
History also favors value stocks over growth when it comes to returns post-election. No matter which party wins the election, value stocks always gave better returns than growth for nearly six months post-presidential election dating back to 1980, per a study by Larry McDonald and his team at the Bear Traps Report, as quoted in a
article. Here’s the table from the article –
5 Top Value Stocks to Buy Now
Since the rotation from growth to value stocks has already started in the markets, there is a chance that undervalued stocks may shine post-election no matter who wins. Thus, it will be prudent in invest in such stocks now.
Thanks to our new
style score system
, we have been able to identify five value stocks. Our research shows that stocks with a
of A or B when combined a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best opportunities in the value investing space.
AP Quick Quote AP - Free Report
) businesses are classified in three segments: Forged and Cast Rolls, Air and Liquid Processing, and Plastics Processing Machinery. The company currently has a Zacks Rank #1 and a Value Score of B. The Zacks Consensus Estimate for its current-year earnings has moved up more than 100% over the past 60 days.
AmpcoPittsburgh has a price-to-earnings ratio (P/E) of 9.0, compared with 25.7 for the industry. The company’s expected earnings growth rate for the current year is 35.1%.
Koppers Holdings Inc.
KOP Quick Quote KOP - Free Report
) is an integrated global provider of treated wood products, wood treatment chemicals and carbon compounds. The company currently has a Zacks Rank #2 and a Value Score of A. The Zacks Consensus Estimate for its current-year earnings has risen 4.6% over the past 60 days.
Koppers has a price-to-earnings ratio (P/E) of 7.23, compared with 13.90 for the industry. The company’s expected earnings growth rate for the next year is almost 12%.
Flexible Solutions International Inc.
FSI Quick Quote FSI - Free Report
) develops, manufactures, and markets specialty chemicals that slow the evaporation of water in Canada as well as in the United States. The company currently has a Zacks Rank #2 and a Value Score of A. The Zacks Consensus Estimate for its current-year earnings has moved 32% up over the past 60 days.
Fidelity National Financial, Inc
FNF Quick Quote FNF - Free Report
) is a leading provider of title insurance, specialty insurance and claims management services. The company currently has a Zacks Rank #1 and a Value Score of B. The Zacks Consensus Estimate for its current-year earnings has climbed 24% over the past 60 days.
Fidelity National Financial has a price-to-earnings ratio (P/E) of 8.31, compared with 12.80 for the industry. The company’s expected earnings growth rate for the current year is 18.9%.
MRBK Quick Quote MRBK - Free Report
) provides commercial banking products and services for small and middle market businesses primarily in southeast Pennsylvania, Delaware, and southern New Jersey. The company currently has a Zacks Rank #1 and a Value Score of B. The Zacks Consensus Estimate for its current-year earnings has moved 6.5% north over the past 60 days.
Meridian has a price-to-earnings ratio (P/E) of 6.42, compared with 11.80 for the industry. The company’s expected earnings growth rate for the current year is 60.1%.
These Stocks Are Poised to Soar Past the Pandemic
The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.
Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.