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5 Top Value Stocks with Strong Growth

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  • (0:30) - Stock Market Sell Off Returns: Finding Strong Value Stocks
  • (4:30) - Tracey’s Top Stock Picks
  • (24:15) - Episode Roundup: AN, UBS, APA, KBH, HOG


Welcome to Episode #270 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.

With the stock market still selling off in 2022, it’s not just the growth stocks that have gotten a lot cheaper.

Value stocks with solid fundamentals have as well.

Is it time to buy some top stocks that have gone on sale?

Screening for the Rare Combination of Value and Growth

Investors can use the forward P/E to find value stocks. If you screen with a P/E under 10, you are getting dirt cheap stocks as the S&P 500 is trading at 19x.

But what if you combine value with growth?

It’s a rare combination to find cheap stocks that also have low PEG ratios. A PEG ratio under 1.0 usually indicates a company has both growth and value.

And in this volatile year in which many companies are trying to lap strong earnings from 2021, why not look for companies with rising earnings estimates? You can screen for Zacks Rank #1 (Strong Buys), which is an elite group of about 240 stocks.

Screening just using those 3 fundamentals returned 25 companies in the industries of autos, retail, agriculture, banks, energy and home builders.

5 Top Value Stocks with Strong Growth

1.       AutoNation, Inc. (AN - Free Report)

AutoNation recently reported its 7th consecutive record quarterly earnings. Revenue was up 14% in the fourth quarter to $6.6 billion driven by used vehicle sales which rose 55%.

Three estimates were raised in the last week for 2022, pushing the Zacks Consensus Estimate up to $18.62 from $17.95.

AutoNation shares have fallen 16% in the last 3 months. They are cheap with a forward P/E of just 5.6.

AutoNation doesn’t pay a dividend but it does have a stock repurchase program with $776 million remaining.

Is the Street ignoring AutoNation in 2022?

2.       UBS (UBS - Free Report)

UBS is a big cap Swiss bank. It pays a dividend, currently yielding 2.6%.

The 2022 Zacks Consensus Estimate has risen to $2.16 from $1.99 in the last month.

UBS has a PEG ratio of just 0.5.

Shares are up in 2022, adding 2% while the S&P 500 is down 8.6%.

Should UBS be on your wish list?

3.       APA Corporation (APA - Free Report)

APA is an independent oil and natural gas producer. It is committed to paying out 60% of its free cash flow in 2022 and raised its base dividend twice last year.

The analysts are bullish on APA, with 6 estimates moving higher in the last month. The 2022 Zacks Consensus Estimate has risen to $6.38 from $5.67 in that time.

That’s earnings growth of 63% as APA only made $3.90 in 2021.

Shares are up 20% year-to-date but are still cheap on a P/E basis with a forward P/E of just 4.8.

Is APA too hot to handle after the rally?

4.       KB Home (KBH - Free Report)

KB Home builds homes in 47 markets from coast to coast. But even though business has been good during the pandemic, Wall Street is doubtful.

The shares have sunk 17% in 2022 and have been hitting 52-week lows.

Yet analysts have raised their 2022’s earnings estimates in the last 2 months, pushing up the full year consensus estimate to $10.16 from $7.88. That’s earnings growth of 68% because KB Home made just $6.05 last year.

KB Home shares are dirt cheap, with a forward P/E of only 3.6.

Is the low P/E a warning signal or is KB Home a hidden value gem?

5.       Harley Davidson (HOG - Free Report)

Harley Davidson, the motorcycle manufacturer, grew revenue by 32% in 2021 and expects to grow it another 5% to 10% in 2022.

Harley Davidson recently finished its first year of its 5-year strategic plan called Hardwire.

The analysts are bullish on Harley Davidson, with 4 estimates higher for 2022 in the last month. It has pushed the Zacks Consensus up to $4.27 from $3.51 in that time.

Shares are up 6.5% year-to-date but Harley Davidson remains cheap, with a PEG ratio of 0.2.

Is it time for value investors to consider Harley Davidson?

What else do you need to know about stocks with the rare combination of value and growth?

Tune into this week’s podcast to find out.

[In full disclosure, Tracey owns shares of APA in her personal portfolio.]

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