“It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” — Warren Buffett. The strategy is quite simple — find stocks that are trading below their inherent worth.
An investment decision based on the intrinsic value of stocks seems feasible in the given economic scenario that witnessed a rise in benchmark interest rate, improvement in the manufacturing sector and steady job additions. However, it also saw oil prices lose ground, encountered political gridlock and faced other geopolitical qualms. Not to forget, deadly hurricanes one after another and flaring tensions with North Korea are also escalating concerns and could hurt investor sentiment.
Patience is the demand of time and investors should avoid taking any haste decisions. In today’s discussion, we are focusing on the Zacks Retail Sector and trying to find out stocks that are treading on value oriented path. As of now a decent run in the U.S. stock market, sturdy retail sales data, improving labor market and gradual recovery in the housing market exhibit a solid economic report card. The “second estimate” released by the Commerce Department showed that the U.S. economy grew 3% during the second quarter.
Nonetheless, the recent unwarranted events could derail the positive tone that markets have retained so far. In such a scenario, it would be prudent to add some safe bets to your portfolio in order to shore up gains.
Value Investing: An Ideal Strategy
In value investing, investors pick stocks that are cheap but fundamentally sound. So the chance of these stocks allowing investors to book profits is high when the market trends upward. Consequently, a look at the intrinsic value of a stock is always warranted for long-term investors. So what are the criteria to identify value stocks?
A value stock may have a high dividend yield, low price-to-book ratio, low price-to-earnings ratio or a low price-to-sales ratio. However, it might be difficult for one to look at each parameter and compare with the peer group for an analysis on whether the stock is attractive from the value perspective. To make the task easier, Zacks has designed the new Style Score System. The attractiveness of a stock as an investment option is confirmed by its Value Style Score of A or B combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy).
4 Prominent Picks
Rush Enterprises, Inc. (RUSHA - Free Report) has emerged as a strong contender with a long-term earnings growth rate of 15% and a Value Score of A. In a year, the stock has surged roughly 66.5% comfortably outperforming the industry’s growth of 4.3%. This integrated retailer of commercial vehicles and related services delivered an average positive earnings surprise of 27% in the trailing four quarters and flaunts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
We also suggest investing in The Children's Place, Inc. (PLCE - Free Report) with a long-term earnings growth rate of 9% and a Value Score of B. In a year, this Zacks Rank #1 stock has increased roughly 35.1%, while the industry witnessed a decline of 33.1%. This specialty retailer of children's apparel delivered an average positive earnings surprise of 16.3% in the preceding four quarters.
You may also consider Aaron's, Inc. (AAN - Free Report) , an omni-channel provider of lease-purchase solutions. The stock sports a Zacks Rank #1 and has a Value Score of B. The company posted an average positive earnings surprise of 14% in the trailing four quarters. In a year, the stock has displayed a fabulous bull run on the index and has risen 65.3%, while the industry increased 38.8%.
Investors can count on Herbalife Ltd. (HLF - Free Report) , which develops and sells weight management, sports and fitness, and nutritional and personal care products. The company posted an average positive earnings surprise of 25.1% in the trailing four quarters and has a Value Score of B. In the trailing six months, this Zacks Rank #2 stock has exhibited a bullish run and surged roughly 32.2%, while the industry declined 3.8%.
One Simple Trading Idea
Since 1988, the Zacks system has more than doubled the S&P 500 with an average gain of +25% per year. With compounding, rebalancing, and exclusive of fees, it can turn thousands into millions of dollars.
This proven stock-picking system is grounded on a single big idea that can be fortune shaping and life changing. You can apply it to your portfolio starting today.
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