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5 Value Stocks That Are Screaming Buys Amid Higher Yields

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Value investing, which had lost appeal during the Trump rally, regained its luster in recent months driven by bouts of market volatility, political uncertainty and geopolitical tensions. In particular, inflationary fears, rise in yields and faster-than-expected rates hike led to the recent spike in value stocks.

Below we discuss some strong reasons for investing in value stocks.

Higher Yields

The 10-year Treasury yields topped the 3% level, which could trigger financial shock waves as it did in 2013. In fact, the yield curve started steepening after a long period of flattening and when the yield curve steepens, value companies have better access to capital and should outperform growth ones.

Faster Rate Hike Expectations

A spike in commodity prices, especially oil and metals, has led to inflationary pressures and thus speculation of faster rate hikes. Per the latest CME's FedWatch tracking tool, the market is projecting 50% chances of a total of four interest rate hikes this year against the three penciled in by the Fed. This compares to 33% probability a month ago and less than 40% late last week. This has led to greater uncertainty in the market, thereby favoring value stocks, which exhibit lower volatility compared with growth and blend counterparts. Value stocks are less susceptible to trending markets and tend to outperform in rising interest and inflation rate environments.

Tax Reform

The tax cut is expected to provide a huge boost to value stocks. This will lead to an economic surge, boosting job growth in manufacturing and other sectors, increasing inflation and interest rates. Additionally, it would lead to higher earnings, increased buyback activities, and fatty dividends, prompting investors to rotate out of growth and into value stocks.   

Strong Fundamentals

Value stocks have strong fundamentals — earnings, dividends, book value and cash flow — that trade below their intrinsic value. Value stocks often overreact to both positive and negative news, resulting in share price movement that does not reflect the company’s true long-term fundamentals. This creates buying opportunities in such stocks at depressed prices and shows the potential for capital appreciation when the stock finally reflects its true market price.

As a result, investors may want to consider a nice value play in the current scenario. While there are number of options available in the value space, focus on cheap stocks could be a less risky way to tap the same broad trends. Below we have selected five stocks having a Zacks Rank #1 (Strong Buy), a Value Score of A, positive year-over-year estimate revision for this year’s earnings growth and a Zacks Industry Rank within the top 10%, with the help of the Zacks Stock Screener.

Micron Technology Inc. (MU - Free Report)

This is one of the world's leading providers of advanced semiconductor solutions.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Zacks Industry Rank: Top 1%
This Year Fiscal Estimated Earnings Growth – 121.57%
Market Cap: $56.85 billion

Dillard's Inc. (DDS - Free Report)

The company operates as a fashion apparel, cosmetics and home furnishing retailer in the United States.

Zacks Industry Rank: Top 1%
This Year Fiscal Estimated Earnings Growth – 21.25%
Market Cap: $2.09 billion

United States Steel Corporation (X - Free Report)

It is an integrated steel producer with major production operations in the United States and Central Europe.

Zacks Industry Rank: Top 8%
This Year Fiscal Estimated Earnings Growth – 172.68%
Market Cap: $6.43 billion

Seagate Technology PLC (STX - Free Report)

The compnay offers a portfolio of hard disc drives, solid state drives and solid state hybrid drives.

Zacks Industry Rank: Top 9%
This Year Fiscal Estimated Earnings Growth – 19.66%
Market Cap: $16.58 billion

Univar Inc.

This is a distributor of commodity and specialty chemical products, and related services worldwide.

Zacks Industry Rank: Top 9%
This Year Fiscal Estimated Earnings Growth – 23.72%
Market Cap: $4.08 billion

Bottom Line

Value stocks seek to outperform amid market uncertainty as well as in a higher rate environment. As such, investors shouldn’t forget the value space and should take a closer look at a few of the attractive value products in this segment for excellent exposure and some outperformance in the near term.

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