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Buy These Top-Ranked Value Stocks Right Now?

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The last few days of January trading provided a much-needed rebound after a brutal month for stocks, with the S&P 500 suffering its worst month since March 2020. Just last week, the Nasdaq was down 17% from its records and the S&P 500 was hovering roughly 10% off its highs, with both well below their 200-day moving averages.

Some bullish optimism has returned since then. Wall Street decided it was time to start buying up beaten-down stocks that had seen large chunks of their pandemic gains washed away and valuations recalibrated closer to pre-covid levels. The benchmark index is now closing in on its 50-day moving average again and the tech-heavy Nasdaq is up almost 8% off Friday’s lows.

The market could experience more selling and certainly increased volatility in the coming weeks and months, considering the lingering covid impacts on economic growth and the increased likelihood of more Fed rate hikes.

Staying on the sidelines is a possibility amid bouts of heightened uncertainty. Keeping cash on hand to invest in stocks and ETFs after big downturns is crucial, and it is what many on Wall Street just did. Plus, trying to call a bottom is extremely difficult and can often only be done precisely in retrospect.  

Let’s also remember that interest rates will have to climb far higher to make equities broadly unappealing. Plus, the outlook for S&P 500 margins, sales, and earnings have proven resilient and historically strong for 2022 and 2023.

This means investors, especially those with longer-term horizons of a few years or more, might consider buying strong stocks at solid valuations, even during stretches of volatility and selling…

KB Home (KBH - Free Report)

KB Home is one of the biggest U.S. homebuilders, currently operating in 47 markets. KBH attempts to build homes in highly desirable areas within states such as Colorado, Arizona, Texas, California, and Nevada. KBH allows buyers to customize many aspects of their homes. KBH is also committed to more energy-efficient offerings, with the firm boasting it’s “the first builder to make every home we build ENERGY STAR certified.”

KBH has benefitted from the booming covid housing market that’s been driven by low interest rates, the desire for space, remote work, and more. Better still, millennials are finally fueling the market. This plays into KB Home’s strength since a majority (62% in 2021) of its clients are first-time buyers.

Plus, reports suggest the U.S. housing market is still millions of single-family homes short of current demand. Let’s also remember that even though 30-year mortgage rates are off their lows (around 2.65% in January 2021), they are still below their pre-covid selloff levels and very low by historical standards at 3.55% at the moment.

Zacks Investment ResearchImage Source: Zacks Investment Research

KBH topped Zacks Q4 earnings estimates in January, with quarterly revenue up 40%. Meanwhile, its FY21 sales climbed 37% to $5.7 billion and its net income soared 91% to $565 million. KB Home closed the year with a $4.95 billion backlog, up 67%. Despite all of the economic challenges, the firm raised its 2022 outlook and projected an average selling price between $480K to $490K, up from its $423K average last year.

Zacks estimates call for KB Home’s fiscal 2022 revenue to surge 30% to $7.5 billion and climb another 12% in FY23 to $8.4 billion. Its adjusted earnings are projected to soar 68% this year and 10% higher in 2023. KBH’s FY22 and FY23 consensus earnings estimates have jumped 29% and 25%, respectively since its fourth quarter release.

KB Home’s EPS revisions help it land a Zacks Rank #1 (Strong Buy) right now, and Wall Street is high on the stock with seven of the 10 brokerage recommendations Zacks has at “Strong Buys.” KBH is also part of the Building Products - Home Builders space that ranks in the top 25% of over 250 Zacks industries. And its 1.4% dividend yield tops the S&P 500's 1.3%.

Zacks Investment ResearchImage Source: Zacks Investment Research

KB Home’s dividend isn’t boosted by a falling stock price, with it up 96% in the last three years to top the S&P 500’s 70% and its industry’s average. The stock has suffered an up and down 12 months, and at $42.68 a share, it trades nearly 18% below its May highs.

KB Home’s current Zacks consensus price target represents 33% upside to Wednesday’s closing levels. And KBH is right on the cusp of breaking above both its 200-day and 50-day moving averages. Sticking with the theme today, KBH is also trading at roughly decade-long lows (outside of the covid selloff) at 4.0X forward 12-month earnings. This marks a massive discount to its industry’s 8.7X.

Winnebago Industries, Inc. (WGO - Free Report)

Winnebago builds motorhomes, travel trailers, fifth wheel products, and boats under multiple brands, including its namesake, Chris-Craft, Grand Design, Newmar, and others. WGO completed its acquisition of the industry’s fastest-growing, premium pontoon boat manufacturer, Barletta, at the end of August—it bought Chris-Craft in 2018.

Winnebago’s business is somewhat cyclical, with big-ticket items often going out of style quickly in times of economic distress—last large YoY sales decline in 2009. Since then, WGO has been a largely unstoppable run, having posted strong double-digit sales growth in nine out of the past 12 years.

Unlike during the financial crisis, the pandemic helped fuel Winnebago for a variety of reasons. People are flush with cash from the soaring market and many others decided to make lifestyle changes. WGO posted 19% sales growth in FY20 and 54% in fiscal 2021 (period ended August 28) to help its adjusted earnings skyrocket 230%. Winnebago is coming off another round of impressive quarterly results (Q1 FY22) in December.

Zacks Investment ResearchImage Source: Zacks Investment Research

Looking ahead, Zacks estimates call for its full-year fiscal 2022 revenue to climb another 26% to $4.56 billion—vs. $2.36 billion in FY20. And Winnebago’s adjusted earnings are projected to surge 44%. The company’s strong outlook in the face of economic headwinds helped it raise guidance, which boosted its FY22 consensus EPS estimate by 31% since December, with FY23 up 11%.

Winnebago’s recent bottom-line revisions help it land a Zacks Rank #1 (Strong Buy) at the moment, and it’s crushed our quarterly earnings estimates by an average of 40% in the trailing four quarters. WGO executives bolstered its stock buyback program in 2021 and raised its dividend payout, with a 1% yield right now.

Zacks Investment ResearchImage Source: Zacks Investment Research

Winnebago shares have soared 600% in the past decade to crush its highly-ranked industry’s 330%. The stock has cooled down, with it roughly flat during the trailing 12 months. WGO closed regular trading Wednesday 20% below its records and 30% under its current Zacks consensus price target.

Furthermore, WGO trades at a 60% discount to its own year-long highs at 5.9X forward 12-month earnings and offers solid value compared to its industry. Most impressively, WGO is trading at roughly 10-year lows despite its market-beating stock price performance. 

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