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The Easiest Value Stock Screen Ever

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  • (0:45) - Basic Value Screener: P/E Only
  • (5:35) - Tracey’s Top Stock Picks
  • (16:45) - Big Takeaways on Investing In Value
  • (19:20) - Episode Roundup: CELG, BZH, EAF, MGI, HEAR

Welcome to Episode #111 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.

Sometimes you just want to find cheap stocks but you don’t want to search for a bunch of the value fundamentals. You just want a basic screen.

Why not screen for low P/E ratio stocks?

Sure, it’s not a perfect metric, but it’s a basic fundamental that will get you “cheap” stocks, at least on an earnings basis.

The Easiest Value Stock Screen Ever

In order to get really cheap stocks, however, you’ll probably want to lower the range of P/Es you look for.

Normally, a P/E under 15 usually designates value. That’s under the current P/E of the S&P 500 which is around 18.

But if you’re going to screen for basic value stocks, why not go lower?

Screening for stocks with P/Es under 10, in a market that continues to hit new highs, means you’re going to get the cheapest stocks.

But that’s still a wide screen. You’ll have to look through hundreds of stocks.

That’s why the addition of the Zacks Rank #1 (Strong Buy) and #2 (Buy) stocks to the screen is a good idea. It will help narrow the screen to a manageable level.

The screen, then, looks for stocks with a forward P/E under 10 and the Zacks Rank of #1 or #2.

That returned 99 stocks.

Out of those 99, Tracey took a closer look at 5 companies. Are they truly value stocks?

5 Cheap Stocks with Attractive Zacks Ranks

1.       Celgene (CELG - Free Report) is a biopharmaceutical giant specializing in cancer treatments. The shares have sunk nearly 17% year-to-date. It has a forward P/E of 9.99, just barely making the cut. Is there finally earnings growth with some of the drug makers?

2.       Beazer Homes (BZH - Free Report) is a national home builder with business in the Southeast, including Florida, as well as Texas, California, Utah and Arizona. Shares have plunged 44% year-to-date as investors worry about rising mortgage rates. With a forward P/E of 6.3, is it time to take a look at the home builders?

3.       Graftech International (EAF - Free Report) makes graphite electrode products essential to the production of electric arc furnace steel. Shares are actually up 31% year-to-date yet they’re still cheap with a forward P/E of just 7. But investors should be cautious on the smaller companies with less analyst coverage. Zacks has just 1 earnings estimate on this company for 2018.

4.       MoneyGram International (MGI - Free Report) sends and receives money around the world. It recently announced that customers would be able to receive money in any of the 17,000 OXXO stores in Mexico. Shares are down big in 2018, plunging nearly 60%. It has a forward P/E of just 8.2 but is it a value trap?

5.       Turtle Beach (HEAR - Free Report) makes headsets for the gaming community. Shares are down just 5% in the last 3 months. Earnings are expected to soar over 1000% in 2018 as the company makes the headsets you need to play Fortnite, the most popular video game of the year. Should you take a chance on this company which sports a forward P/E of just 9.4?

There’s often a reason a stock is much cheaper than the overall market.

It may be in an industry that is out of favor. It may be having management or other corporate problems. It also may be having product issues.

Investors should always dig down deeper into the companies they get in stock screens. The P/E and the Rank don’t reveal all that is going on there.

What else should you know about the easiest value screen ever?

Tune into this week’s podcast to find out.

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