For Immediate Release
Chicago, IL – May 17, 2019 – Zacks Value Trader is a podcast hosted weekly by Zacks Stock Strategist Tracey Ryniec. Every week, Tracey will be joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and how it impacts your life. To listen to the podcast, click here:
Cheap Stock or Value Trap?
Welcome to Episode #141 of the Value Investor Podcast.
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.
It’s time to take a look at cheap stocks again.
Just because a company has a low P/E ratio, P/S ratio or Price-to-Book, doesn’t mean that it’s necessarily a value stock.
There are plenty of companies that have what look like classic value fundamentals, only, when you drill down, they actually are value traps.
What’s a Value Trap?
How can you tell the difference between a value stock and a value trap?
While the company may have classic value fundamentals, investors need to look beyond the P/E ratio at the “E” of the P/E.
Are the earnings expected to rise, or decline, year-over-year?
If they are on the decline, the stock is likely to be a value trap because that means there is something happening at the company that is causing it to struggle to grow.
Investors want earnings growth, not decline. The “E” in the P/E should not be on the decline.
Are These Old Favorites Still Value Traps?
In past podcasts, General Motors (GM - Free Report) and General Electric (GE - Free Report) have both shown up as cheap stocks but they were also value traps thanks to falling earnings.
Has anything changed in 2019?
General Motors is still cheap, with a forward P/E of just 5.6. Berkshire Hathaway has been adding to its position in the stock.
Have earnings turned around?
General Electric used to be cheap but the shares have surged 41% in 2019 and it doesn’t even qualify as a value stock, at least based on its P/E ratio, which is now 17.
3 Stocks: Cheap or a Value Trap?
1. Chemours (CC - Free Report) has been featured on prior podcasts. It’s dirt cheap with a forward P/E of 5.7. It also pays a dividend that is now yielding 4.1% as the shares are down 41% in the last month. Is it cheap or a trap?
2. Camping World (CWH - Free Report) said in its recent earnings report that it saw improvement in sales trends starting in mid-March that continued into April and early May. But shares have sunk 18% in the last month. Shares are super cheap, with a forward P/E of just 7.3. Is it a trap?
3. L Brands (LB - Free Report) which is Victoria’s Secret, hasn’t reported its earnings yet. But one analyst has already revised his estimate lower for the quarter and full year ahead of the report. That’s a bearish sign. The shares are down 13% year-to-date and remain cheap, with a forward P/E of 9.5. Is it a good value stock or a trap?
It’s easy to get sucked into value trap stocks.
What else should you know about how to spot them?
Listen to this week’s podcast to find out.
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +98%, +119% and +164% in as little as 1 month. The stocks in this report could perform even better.
See these 7 breakthrough stocks now>>
Zacks Investment Research
800-767-3771 ext. 9339
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.