U.S. bond yields in recent times have been scaling upwards. In fact, as quoted in a
CNBC article, the 10-year Treasury yield jumped above the coveted 1.75% mark on Mar 18, which is its highest level in a year. The 10-year Treasury note later ended at 1.719%, but still remained high. Interestingly, the 10-year Treasury bond moved north despite the Fed’s reassurance that it not hiking interest rates anytime soon, nor tapering its asset-purchasing program.
However, the Fed did mention that the U.S. economy is expected to strengthen this year, especially after the drubbing it took last year, thanks to the coronavirus outbreak. At the conclusion of the Fed’s two-day policy meeting on Mar 17, the central bank forecasted U.S. GDP to grow a healthy 6.5% this year, as mentioned in the CNBC article. The article further stated that earlier in December, the Fed projected U.S. GDP to rise to 4.2%. Additionally, it at present expects a slight bump in the inflation rate before cooling off in the long run. The central bank projected the inflation rate to be 2.2% this year followed by 2% next year.
Now, all these suggest that the Fed wants economic activity to pick up in the near future and allow the United States to recoup from the coronavirus pandemic impacts. However, it means costs of essential commodities will pick up, thereby eroding the value in bonds and other fixed-asset investments. As a result, bond prices dipped while yields rose. Notably, bond prices and yields have an inverse relationship.
But then again, a rise in bond yields diminished the allure of risker investments like growth-oriented tech stocks. Anyhow, growth stocks have lofty valuations, which make it difficult for retail investors to invest in these. Therefore, such investors in bulk have now started to pour money into value stocks. Needless to say that this process had already begun last month when value stocks easily outperformed their growth counterparts, per Bank of America, as mentioned in a
Moreover, let’s admit, value stocks tend to do well in the recovery period of an economic cycle. The Congressional Budget Office (“CBO”) also expects the U.S. economy to grow at a “rapid” pace this year. Per the CBO, the U.S. GDP is likely to come in at a solid 3.7% in 2021, as cited in another
Talking about the economy, coronavirus-led shutdown measures to a large extent have been lifted, a tell-tale sign that the economy is strengthening. The service, as well as the manufacturing side of the economy, continues to remain in expansionary mode. The labor market has also started to show signs of improvement, with job additions increasing at a steady clip in recent times, and the jobless rate declining. What’s more, consumers’ outlays have picked up on improving household income.
Hence, it won’t be a bad proposition from an investment standpoint to capitalize on this rotation to value stocks at the moment. Thanks to our
style score system, we have been able to identify five value stocks. Our research shows that stocks with a Value Score of A or B when combined a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best opportunities in the value investing space. ABM Industries Incorporated ( ABM Quick Quote ABM - Free Report) is a provider of integrated facility solutions in the United States and internationally. The company currently has a Zacks Rank #1 and a Value Score of A. The Zacks Consensus Estimate for its current-year earnings has moved up 28.1% over the past 60 days. ABM Industries has a price-to-earnings ratio (P/E) of 15.51 compared with 19.4 for the industry. The company’s expected earnings growth rate for the current year is 33.3%. You can see the complete list of today’s Zacks #1 Rank stocks here. Ally Financial Inc. ( ALLY Quick Quote ALLY - Free Report) is a diversified financial services company providing a broad array of financial products and services, primarily to automotive dealers and their customers. 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 up 13.6% over the past 60 days. Ally Financial has a P/E ratio of 10.35 compared with 14.3 for the industry. The company’s expected earnings growth rate for the current year is 49.2%. BrightView Holdings, Inc. ( BV Quick Quote BV - Free Report) is a provider of commercial landscaping services primarily in the United States. The company currently has a Zacks Rank #2 and a Value Score of B. The Zacks Consensus Estimate for its current-year earnings has moved up 3.9% over the past 60 days. BrightView Holdings has a P/E ratio of 16.17 compared with 88.7 for the industry. The company’s expected earnings growth rate for the current year is 17.6%. CAI International, Inc. ( CAI Quick Quote CAI - Free Report) is one of the world's leading intermodal freight container leasing and management companies. The company currently has a Zacks Rank #1 and a Value Score of A. The Zacks Consensus Estimate for its current-year earnings has moved up 45.7% over the past 60 days. CAI International has a P/E ratio of 6.49 compared with 46.3 for the industry. The company’s expected earnings growth rate for the current year is 38.5%. Hillenbrand Inc ( HI Quick Quote HI - Free Report) is a diversified industrial company with multiple market-leading brands that serve a wide variety of industries across the globe. The company currently has a Zacks Rank #2 and a Value Score of B. The Zacks Consensus Estimate for its current-year earnings has moved up 9.5% over the past 60 days. Hillenbrand has a P/E ratio of 14.86 compared with 15.6 for the industry. The company’s expected earnings growth rate for the current year is 8.8%. Bitcoin, Like the Internet Itself, Could Change Everything
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