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Your Favorite Stock Sold Off: Is it a Deal or a Trap?

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  • (0:45) - Finding Deals Heading Into 2022:  Avoiding Value Traps
  • (4:30) - Tracey’s Top Stock Picks
  • (26:15) - Big Takeaways: DIS, PYPL, GPS, JWN, HET, WSM


Welcome to Episode #262 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.

A lot of popular stocks have sold off in the last few weeks, with some of them seeing bear pullbacks of 20% or more.

Disney, PayPal, Gap, Nordstrom and Williams-Sonoma are all down double digits.

Are they cheap?

Should value investors be diving in or is this a value trap?

Definition of a Value Trap

Remember, a stock can be cheap and have classic value fundamentals such as a low P/E or PEG ratio but still not be a deal.

A true value stock has another special factor: increasing earnings for next year.

A trap usually has declining earnings so the stock really isn’t as “cheap” as it appears.

5 Stocks That Have Sold Off: Are they cheap or traps?

1.       Walt Disney (DIS - Free Report)

Disney has been a popular stock for years as many parents have bought it for their children’s portfolios over the years.

But despite being a pandemic winner thanks to its streaming service, the shares have now fallen about 18% year-to-date.

Is Disney cheap after this sell off?

Disney is trading with a forward P/E of 34.8. It’s not exactly cheap on a P/E basis.

But Disney’s earnings are expected to be up 86.9% this fiscal year, with the Zacks Consensus calling for $4.28 up from $2.29 last year.

Are Disney’s earnings expected to bounce back further from the pandemic in fiscal 2023?

Is it a deal?

2.       PayPal (PYPL - Free Report)

PayPal has been on an incredible 5-year run, with shares up 384% during that time compared to the S&P 500 up just 105%.

But in the last few months, PayPal shares have sunk and are now down 18.6% year-to-date.

Earnings are expected to jump 19% to $4.62 this year from $3.88 last year.

But even with the shares retreating, PayPal is still trading with a forward P/E of 40.

Will PayPal grow those earnings next year or is this sell-off a trap?

3.       The Gap (GPS - Free Report)

The Gap owns one of the most popular retail brands in athleisure powerhouse Athleta. But supply chain issues are hitting the retailer this holiday season.

8 estimates have been cut for fiscal 2022 in the last 30 days, pushing this year’s Zacks Consensus Estimate down to $1.35.

That’s still earnings growth of 164% as the Gap lost $2.11 last year.

Shares have tumbled and are now down 30% over the last 3 months.

However, the Gap is a true value stock, with a forward P/E of just 12.

But is it a trap in 2022?

4.       Nordstrom (JWN - Free Report)

Nordstrom recently reported a disappointing quarter and the shares plunged, falling 23.1% over the last 3 months.

7 estimates were cut for this fiscal year in the last 30 days, with one also being raised during that time. But those cuts have pushed the Zacks Consensus down to $1.28 from $1.43 just a month before.

That’s still earnings growth of 129% as Nordstrom lost $4.39 during the prior year, as the pandemic crushed department store retailers.

Nordstrom trades with a forward P/E of 15.9. This is a little high to even be considered a classic value stock.

Is Nordstrom a deal after this big sell off, or is it a trap?

5.       Williams-Sonoma (WSM - Free Report)

Williams-Sonoma is a home products retailer which owns one of the most popular furniture brands among Millennials and GenZ consumers, West Elm.

Tracey owns shares of Williams-Sonoma in her own personal portfolio.

Shares are up big in 2021, gaining 68.5% year-to-date but in the last month, they’ve fallen 18.5% from recent highs.

It is now trading with a forward P/E of just 12, which makes it a value stock by the classical definition with a P/E under 15.

Williams-Sonoma has been reporting record quarters and analysts are bullish on this year, with earnings expected to rise 57.2% year-over-year.

But what about next year?

Will the strong demand for furniture finally cool in 2022?

Is Williams Sonoma on sale or is it a trap?

Tune Into This Week’s Podcast

What else should you know about figuring out if a stock is a deal or a trap?  

Tune into this week’s podcast to find out.

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