U.S. equities came under pressure after the Federal Reserve raised its benchmark interest rate by 25 basis points, marking its first increase since 2023. The move lifted the federal funds target range to 3.75%-4% and weighed on both stocks and bonds. The Dow Jones Industrial Average declined 631.2 points, or 1.2%, while the S&P 500 slipped 0.45%. The Nasdaq Composite proved relatively resilient. 

The policy shift comes as inflation remains above the Fed’s 2% target, with higher oil prices stemming from the widening conflict in the Middle East contributing to inflation. The central bank indicated that another rate hike could occur before the end of the year, reinforcing expectations that monetary policy may remain restrictive for a longer duration.

Against this backdrop, value stocks may offer investors a compelling way to navigate a higher-rate environment. Focusing on fundamentally sound companies trading at reasonable valuations could help investors balance risk while positioning for long-term returns. When evaluating value stocks, one of the most effective valuation metrics is the Price-to-Cash Flow (P/CF) ratio. A lower P/CF ratio generally indicates a more attractively valued stock. 

Companies such as Avnet, Inc. (AVT Quick QuoteAVT - Free Report) , Centene Corporation (CNC Quick QuoteCNC - Free Report) , Signet Jewelers Limited (SIG Quick QuoteSIG - Free Report) and Lifetime Brands, Inc. (LCUT Quick QuoteLCUT - Free Report) currently stand out based on this measure.

Why Price-to-Cash-Flow Metric?

Price-to-Cash-Flow metric evaluates the market price of a stock relative to the amount of cash flow that the company is generating on a per-share basis — the lower the number, the better. One of the important factors that makes P/CF a highly dependable metric is that operating cash flow adds back non-cash charges such as depreciation and amortization to net income, truly diagnosing a company's financial health.

Analysts caution that a company’s earnings are subject to accounting estimates and management manipulation. However, cash flow is reliable. Net cash flow unveils how much money a company is actually generating and how effectively management is deploying the same.

Positive cash flow indicates an increase in a company’s liquid assets. It gives the company the means to settle debt, meet its expenses, reinvest in its business, endure downturns and finally pay back its shareholders. Negative cash flow implies a decline in the company’s liquidity, which in turn lowers its flexibility to support these moves.

What’s the Best Value Investing Strategy?

An investment decision based solely on the P/CF metric may not yield the desired results. To identify stocks that are trading at a discount, you should expand your search criteria and also consider the price-to-book ratio, price-to-earnings ratio, and price-to-sales ratio. Adding a favorable Zacks Rank and a Value Score of A or B to your search criteria should lead to even better results as these eliminate the chance of falling into a value trap.

Here are the parameters for selecting true-value stocks: 

P/CF less than or equal to X-Industry Median.

Price greater than or equal to 5: The stocks must all be trading at a minimum of $5 or higher.

Average 20-Day Volume greater than 100,000: A substantial trading volume ensures that the stock is easily tradable.

P/E using (F1) less than or equal to X-Industry Median: This parameter shortlists stocks that are trading at a discount or are equal to their peers.

P/B less than or equal to X-Industry Median: A lower P/B compared with the industry average implies that there is enough room for the stock to gain.

P/S less than or equal to X-Industry Median: The P/S ratio determines how a stock price compares to the company’s sales — the lower the ratio, the more attractive the stock is.

PEG less than 1: The ratio is used to determine a stock's value by taking the company's earnings growth into account. The PEG ratio gives a more complete picture than the P/E ratio. A value of less than 1 indicates that the stock is undervalued and that investors need to pay less for a stock that has robust earnings growth prospects.

Zacks Rank less than or equal to 2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform irrespective of the market environment.

Value Score of less than or equal to B: Our research shows that stocks with a Style Score of A or B, when combined with Zacks Rank #1 or 2, offer the best upside potential.

Here are four of the 14 value stocks that qualified the screening:

Avnet, a leading global technology distributor and solutions provider, sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 13.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Avnet’s current financial-year sales and EPS indicates growth of 23.5% and 84.3%, respectively, from the year-ago period. AVT has a Value Score of B. Shares of AVT have surged 72.8% over the past year.

Centene Corporation, a leading healthcare enterprise, sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 151.3%, on average. 

The Zacks Consensus Estimate for Centene Corporation’s current financial-year sales and EPS implies growth of 0.8% and 135.1%, respectively, from the year-ago period. CNC has a Value Score of A. Shares of CNC have soared 105.1% over the past year.

Signet, a leading specialty jewelry retailer operating brands such as Kay Jewelers, Zales, Jared and Diamonds Direct, sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 86.6%, on average. 

The Zacks Consensus Estimate for Signet’s current financial-year sales and EPS indicates growth of 0.8% and 21.9%, respectively, from the year-ago period. SIG has a Value Score of A. Shares of SIG have risen 6.2% over the past year.

Lifetime Brands, a leading global provider of branded kitchenware, tableware and other products, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 271.1%, on average. 

The Zacks Consensus Estimate for Lifetime Brands’ current financial-year sales and EPS indicates growth of 4.4% and 156.8%, respectively, from the year-ago period. LCUT has a Value Score of A. Shares of LCUT have gained 108.5% over the past year.