With the start of the New Year, it’s time for investors to evaluate the stock markets in a new light. Last year, the market suffered substantially due to the U.S.-China trade turmoil, which dampened investors’ sentiment.
In 2019, brick-and-mortar retail stocks plummeted, dragging the S&P Retail Select Industry Index’s performance. The industry witnessed mere 3.2% growth. Per U.S. News, the growing prevalence of alternatives such as online shopping was a major reason behind the weak performance.
Further, going by U.S. News, 2019 was not a great year for the energy sector. However, toward the end of 2019, energy stocks started performing well (up 5.8% in the year). Per a report by CNBC, energy stocks have started performing well since November 2019 and are expected to continue the momentum through 2020.
Oil ended 2019 on a solid note. Per Deloitte, oil and gas companies’ operational leadership, and investors’ patience in finding and investing in these companies can prove to be rewarding for them in 2020.
There are minimum chances of a rebound in pure-play brick-and-mortar retail stocks in 2020 as the companies, which are gradually shifting focus to e-commerce businesses, are expected to grab a major share of retail revenues in 2020. This is an ideal time for investors to focus on such stocks.
Further, year 2020 can prove to be great for investors keen to put money in international stocks, which have cheap valuation. Last year, the global economy slowed down with the tightening of trade conditions. Europe’s manufacturing sector reached the lowest point in seven years, before rebounding in November 2019, per CNBC. However, the easing of the trade tensions between the United States and China might spur global economic growth to some extent.
Per a report published in Reuters, investment in global stocks caused an inflow of $8.2 billion since mid-November, thus reversing the losing streak since September. Per a few market watchers, international stocks are set to shine in 2020, backed by stimulated global economic growth, weakening dollar and favorable valuations.
Why Should You Invest in Value Stocks?
It has been observed that growth stocks outshine value stocks during times of lower profits. As the economy starts to rebound, value stocks tend to outperform. Another reason why investors should pick undervalued stocks this year is the approaching value cycle in the U.S. economy, per a statement by Savita Subramanian from Bank of America published on U.S. News.
Going by a report published on TheStreet, value stocks gained an edge over growth stocks in 2019. The trend is likely to continue in 2020.
Per a report by Goldman Sachs Group published on Barron’s, the U.S. economy is set to see acceleration as trade tensions recede and consumer sentiment remains strong. This, in turn, is expected to boost investor sentiments further, thus benefiting value stocks.
Picking the Right Stocks
Value stocks are a safe bet for investors as they provide good returns over a period and are considered fundamentally more stable.
In order to help investors identify the ideal investment choices, we have used the Zacks Stock Screener.
We have shortlisted stocks with a Value Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Notably, we have considered companies with a market capitalization of more than $1 million.
Here are five solid bets for 2020.
Ally Financial Inc. (ALLY - Free Report) , currently carrying a Zacks Rank #2 and a Value Score of A, has a PEG ratio of 0.57 compared with the industry’s 0.62. The broader market’s PEG ratio stands at 0.69. The renowned diversified financial services company, providing a broad array of financial products and services (primarily to automotive dealers and their customers), has Price/Book (P/B) and Price/Cash Flow (P/CF) ratios of 0.8 and 4 compared with the industry’s 1.1 and 6, respectively. The corresponding ratios for the market at large stand at 4.5 and 36.5.
American Axle & Manufacturing Holdings, Inc. (AXL - Free Report) , a key supplier of driveline and drivetrain systems, modules and components for the light vehicle market, presently has a Zacks Rank #2 and a Value Score of A. Its P/B, P/CF and EV/EBITDA ratios are 0.72, 0.73 and 3.9, respectively while the same for the industry stand at 1.5, 5.1 and 5.13, respectively. The corresponding ratios for the market at large stand at 4.5, 36.7 and 12.1.
Associated British Foods plc (ASBFY - Free Report) , a diversified international food, ingredients and retail group, currently has a Zacks Rank #2 and a Value Score of B. Its EV/EBITDA, PEG and P/B ratios are 10.9, 2.1 and 2.2 compared with the industry’s 14.5, 2.3 and 2.9, respectively. The corresponding ratios for the market at large stand at 12, 2.13 and 4.5.
Associated British Foods PLC Price
Berry Global Group, Inc. (BERY - Free Report) , engaged in the manufacturing and distribution of non-woven specialty materials, engineered materials and consumer packaging products in the market, currently sports a Zacks Rank #1 and a Value Score of A. Its PEG, P/CF and P/S ratios are 0.89, 5.6 and 0.68 compared with the industry’s 1.93, 8.6 and 1.1, respectively. The corresponding ratios for the market at large stand at 2.14, 36.7 and 3.5.
Barclays plc (BCS - Free Report) , a major global banking and financial services company, currently carries a Zacks Rank #1 and has a Value Score of B. Its P/B, P/CF and P/S and ratios are 0.5, 6 and 1.5 compared with the industry’s 0.9, 8.1 and 1.8, respectively. The corresponding ratios for the market at large stand at 4.5, 36.5 and 3.5.
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