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A Rare Combination: Value Stocks with Momentum

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  • (0:20) - Value Stocks With Momentum
  • (3:30) - Tracey’s Top Stock Picks
  • (13:20) - Episode Roundup: CAL, ANDE, MOS, TAST, TGT
  •             Podcast@Zacks.com

 

Welcome to Episode #108 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.

What do value investors do when stocks are trading near their all-time highs?

They buy value stocks that are also trading near their highs.

Are there value stocks with momentum in this market?

And how do you find them?

Running a Screen to Find Momentum Stocks

You can screen to find value stocks with momentum, or, at least, those stocks that are trading close to their highs.

Look for stocks with a Zacks Value Style Score of A, which is the highest score. The value style score isn’t like a classic value fundamental. It combines several value fundamentals but also takes into account a company’s peers in its industry to come up with the value score.

This is a broader valuation metric than just using the P/E or P/B ratios.

For momentum, you can screen for stocks trading within 10% of their 52-week high. This doesn’t guarantee momentum, but it will get you pretty close.

To get the added juice of the Zacks Rank, you can add a Rank of #1 (Strong Buy) or #2 (Buy). This should get you rising earnings estimates which is what we want.

Finding Hidden Value Stocks

Running this screen, it returned 36 stocks.

That’s not too bad given the narrow parameters.

These stocks included many names that have been ignored by Mom and Pop investors for a while now. It’s not surprising that they are value stocks. Usually value means that the Street is ignoring it or running away from it for some reason.

But they now have momentum, so someone on Wall Street is certainly paying attention.

5 Value Stocks with Momentum

1.      Caleres Inc. (CAL - Free Report) operates Famous Footwear stores and owns other shoe brands including Sam Edelman and Naturalizer. Shares hit new 52-week highs on its earnings and are now up about 10% year-to-date. It has a forward P/E of just 16 and investors get a dividend, currently yielding 0.7%.

2.      The Andersons (ANDE - Free Report) hasn’t made a value stock list in a long time. Earnings estimates have been cut over the past few years on the agriculture and fertilizer stocks. But things are starting to turn around. These shares were up 27% year-to-date as its Plant Nutrient, Grain Group and Rail Group divisions recover.

3.      Mosaic (MOS - Free Report) is one of the large potash and phosphate fertilizer companies. In early August it raised full year earnings guidance as it expects recent potash momentum to continue. Shares are up nearly 15% year-to-date.

4.      Carrols Restaurant Group (TAST - Free Report) is better known as the largest Burger King franchisee in the United States. In the second quarter, same-store-sales rose 5% after posting 4.6% in the prior year. That’s among the strongest comps in the industry. It has a forward P/E of 45, however, so how can it be a value stock?

5.      Target Corp. (TGT - Free Report) had its best comparable sales in 13 years in the second quarter, coming in up 6.5%. It was so good, Target raised its comp sales and earnings guidance for the second half of the year. The shares are up nearly 34% year-to-date and have broken out to 5-year highs. Is it too late to buy the retailers?

Value investors don’t need to miss out on the stock rally.

There are plenty of attractively valued companies that value investors can dive into if only investors bother to look.

What else do you need to know about value stocks with momentum?

Find out on this week’s podcast.

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