- (0:20) - No Man Land Stocks
- (2:05) - 2 Stock Examples: SHAK & PBPB
- (8:45) - Tracey's Top Stock Picks: Value + Growth
- (15:25) - Episode Roundup: ALL, PCAR, SBH
Welcome to Episode #82 of the Value Investor Podcast
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio service, shares some of her top value investing tips and stock picks.
She has covered many topics on the podcast including whether or not value investors can buy growth stocks or IPOs and how to figure out the difference between a value stock and a value trap.
But there’s another important category that value investors should be aware of. That’s the stock that is stuck in no man’s land.
What does that mean?
It’s the stock that is neither a value stock nor is it a growth stock. Something is missing from the equation. It has no identity.
As a result, these stocks tend to underperform as both value and growth investors shun them.
What do these stocks look like?
Examples of Stocks in No Man’s Land
1. Shake Shack (SHAK - Free Report) , despite the shares tumbling from their post-IPO highs, still has a forward P/E of 69. It’s clearly not a value stock. But is there growth? Sure, it’s planning on opening another 35 domestic stores in 2018. But same-store-sales fell 1.2% in 2017 even as it raised menu prices. Additionally, it expects same-store-sales to be flat in 2018. Verdict: It’s an expensive stock that doesn’t have a strong enough growth story.
2. Potbelly (PBPB - Free Report) , is a stock that has gone nowhere for several years. Over the last 2 years, shares of this sandwich chain have fallen 3.2% while the S&P 500 was up about 40%. Earnings are expected to fall 33% in 2017. But is it cheap? Not even close. It has a forward P/E of 34. Verdict: Growth is lethargic, at best, and it’s not a value stock.
It’s easy for value investors to get stuck in these stocks because they appear to have value characteristics, as often the shares have sold off big.
But a stock plunge doesn’t necessarily equal value.
Buying a Real Value and Growth Stock Instead
Tracey ran a screen looking for companies that had both value fundamentals AND double-digit earnings growth.
In addition, she added the extra firepower of the Zacks Rank, screening only for Zacks Rank #1 (Strong Buy) stocks, which hopefully means rising earnings estimates.
The screen gave her a list of 56 companies.
Not too shabby.
3 Stocks with the Rare Combination of Growth and Value
1. Allstate Corporation (ALL - Free Report) , the property insurance giant, has a forward P/E of just 11.4 as the shares have fallen about 7% year-to-date. Earnings are expected to rise 25.2% in 2018.
2. PACCAR Inc. (PCAR - Free Report) , the commercial truck manufacturer, saw record annual revenue in 2017 thanks to a strong European truck market. It’s cheap, with a forward P/E of 13.1, and earnings are expected to rise 23% this year. As an added bonus, it has paid a dividend every year since 1941.
3. Sally Beauty Holdings (SBH - Free Report) , operates beauty stores worldwide. It’s known for hair color. The company has been in a transition period as it expands its online capabilities. Same-store-sales are expected to be flat in fiscal 2018 while earnings are expected to rise 32%. It’s dirt cheap as well, with a forward P/E of just 7.3.
What else should you know about stocks in the No Man’s Land and how to avoid them?
Tune into this week’s podcast to find out.
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