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6 Cheap Stocks Offering Growth & Income

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The S&P 500 and the Dow opened lower this morning but it’s hard to be pessimistic about the market when there are multiple data points, all painting an optimistic picture.

First on the list is of course the progress on the pandemic itself as vaccination continues at a rapid pace. This in a way is the strongest factor to drive GDP growth, as it will open up the services sector sooner rather than later.

And the numbers are already speaking. The latest employment report from the BLS states that “job growth was widespread in March, led by gains in leisure and hospitality, public and private education, and construction.” Understandably, the unemployment rate also continues to trend down, clocking 6.0% in March (it was around 4.0% in Mar 2020 and 3.5% in Feb 2020, before the pandemic hit).

The infrastructure-focused stimulus will also boost the manufacturing and construction sectors, driving demand across some of the lagging sectors like basic materials and further boosting the already-hot construction sector. As I’ve already pointed out before, technology tends to grow on its own and also whenever there is growth in other sectors because it helps bring efficiency in operation. That brings us to the earnings outlook, which is also looking up-

So total Q1 earnings for 2021 are now expected to be up +19.9% from last year on +5.6% higher revenues, partly on account of easier comps and partly because of strength in some sectors. The earnings growth estimate is up from just 11.7% on Dec 9. That’s because the estimate revisions trend remains positive, with Q1 estimates for 10 of the 16 Zacks sectors going up over the last three months.

The strongest growth is expected to come from Autos (+200.9%), Finance (+45.9%), Retail (+41.4%), Construction (+36.8%) and Technology (+23.0%). Only Transportation (-159.2%), Consumer Discretionary (-36.3%) and Energy (-0.3%) are expected to decline. The positive trend is currently expected to continue through the year.

Considering the above factors, it’s clear that this is a stock pickers’ market. So there are plenty of options. But for today, I thought it would be a good idea to focus on stocks with particularly strong growth profiles that also pay a dividend.

Because we may be receiving stimulus checks, but a little extra money never hurt anyone. If we can spare it, we could just reinvest the dividend. Because after all, this is the time to buy stocks.

But whatever we do, we must remember that a smart investor doesn’t make losses. Nor does a smart investor re-invent the wheel. We stick to tried and tested methods such as the Zacks Rank for stocks (#1 Rank for Strong Buy and #2 Rank for Buy) and a strong Zacks Industry Rank (the industries you choose should be in the top 50% of 250+ Zacks-classified industries because they’ve been shown to outperform the bottom 50% by a factor of 2 to 1).

Also check that the shares don’t have rich valuations. A price/earnings (P/E) ratio that’s under 15 is generally a good ballpark because the average P/E of stocks in our universe is about there. You may also check that the price-to-earnings growth (PEG) ratio is under 1. A PEG value that’s less than 1 means that you are paying below the earnings growth projection, which is an obvious indication of undervaluation.

Here are a few examples-

China Telecom Corp Ltd. (CHA - Free Report)

China Telecom is a state-owned company operating local telephone networks in ten provinces in China. It has both domestic and international fixed-line networks and infrastructure including wireless local loop and telecom networks for voice, data, video, multimedia and information services.

Zacks Rank #2

Zacks Industry Wireline Non-US (top 8%)

Estimated EPS growth in 2021 25.7%

Zacks Consensus EPS Estimate for 2021 up 2.2% in the last 90 days

Dividend Yield 5.5%

Valuation P/E 5.58X, PEG 0.28

Triton International Ltd. (TRTN - Free Report)

Formed as a merger between Triton Container International Limited and TAL International Group, Triton International, is the largest lessor of intermodal containers (large steel boxes that are used for transporting freight by ship/rail/truck). The company also leases chassis, which are used for transporting containers.

Zacks Rank #1

Zacks Industry Transportation - Equipment and Leasing (top 13%)

Estimated EPS growth in 2021 56.2%

Zacks Consensus EPS Estimate for 2021 up 21.0% in the last 90 days

Dividend Yield 4.1%

Valuation P/E 7.73X, PEG 0.77

Reports on April 23

Repsol SA (REPYY - Free Report)

Repsol SA explores for, develops and produces crude oil products and natural gas, transports petroleum products and liquified petroleum gas, and refines petroleum. It also produces a variety of petrochemicals and markets petroleum products, petroleum derivatives, LPG and natural gas.

Zacks Rank #1

Zacks Industry Oil and Gas - Integrated - International (top 19%)

Estimated EPS growth in 2021 177.8%

Zacks Consensus EPS Estimate for 2021 up 52.4% in the last 90 days

Dividend Yield 4.4%

Valuation P/E 10.02X, PEG 0.25

Reports on May 4

Canadian Imperial Bank of Commerce (CM - Free Report)

CIBC is a leading North American financial institution that offers a full range of products and services through its comprehensive electronic banking network, branches and offices across Canada, the United States and around the world. It offers a full range of financial products and services to personal, business and wealth management clients, as well as investment management services globally to retail and institutional clients. CIBC is headquartered in Toronto, Canada.

Zacks Rank #2

Zacks Industry Banks - Foreign (top 28%)

Estimated EPS growth in 2021 33.7%

Zacks Consensus EPS Estimate for 2021 up 18.9% in the last 90 days

Dividend Yield 4.6%

Valuation P/E 10.24X, PEG 0.96

Reports on May 27

Bank of Montreal (BMO - Free Report)

Bank of Montreal, one of the largest banks in North America, is also one of Canada's oldest banks. It offers a complete range of financial services and customized knowledge-based solutions Canada and the U.S.

Zacks Rank #2

Zacks Industry Banks - Foreign (top 28%)

Estimated EPS growth in 2021 43.5%

Zacks Consensus EPS Estimate for 2021 up 27.6% in the last 90 days

Dividend Yield 3.7%

Valuation P/E 10.95X, PEG 0.75

Reports on May 26

The Bank of Nova Scotia (BNS - Free Report)

Bank of Nova Scotia is another major Canadian bank. It offers a diverse range of personal, commercial, corporate and investment banking products and services. Its core businesses are Domestic Banking, Wealth Management, International Banking and Scotia Capital, all of which have been executing well and generating consistent profits.

Zacks Rank #2

Zacks Industry Banks - Foreign (top 28%)

Estimated EPS growth in 2021 41.6%

Zacks Consensus EPS Estimate for 2021 up 19.5% in the last 90 days

Dividend Yield 4.5%

Valuation P/E 11.15X, PEG 0.79

Reports on May 25

3-Month Price Performance

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