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Value Investors: Time to Get Back to Basics

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  • (0:20) - Getting Back To The Basics: Finding Deals In A Down Market
  • (6:45) -Tracey’s Top Stock Picks
  • (13:20) - Episode Roundup: BBY, COST, SFM, TPH, SPXC
  •                 Podcast@Zacks.com

Welcome to Episode #185 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.

Stocks have rebounded off the big coronavirus sell-off, but that doesn’t mean there aren’t still bargain stocks out there.

Value investors don’t have to get fancy.

Don’t worry about buying at the bottom, or that you might have missed the bottom. Worry about buying the best quality companies when they are cheap.

How to Screen for Cheap Stocks

Value investors could use a basic P/E ratio screen to find cheap stocks, but what is the “E” going to look like over the next couple of quarters as the coronavirus shutdowns hit?

Investors might want to use the price-to-sales (P/S) ratio instead.

While there may not be much certainty over revenue, current P/S ratios are calibrated on the prior 12 months. If a stock is cheap heading into the pandemic, they may be once we come out of it.

You can run a screen with a P/S ratio under 1 and a Zacks Rank of #1 (Strong Buy) and #2 (Buy), to get stocks with rising earnings estimates, if that’s even possible right now.

This screen returned over 200 stocks so if you remove the small caps, you’ll get 78 stocks.

5 Stocks with Low P/S Ratios

1.       Best Buy (BBY - Free Report) could be one of the beneficiaries of the work-from-home mania gripping the country during the coronavirus crisis. Have you ordered a new computer, microphone or other tech equipment? Best Buy has a P/S ratio of just 0.37.

2.       Costco (COST - Free Report) has had strong comparables even before the virus hit. It has a P/S ratio of just 0.85.

3.       Sprouts Farmers Market (SFM - Free Report) shares are actually up 0.1% year-to-date. Groceries are hot. But it still trades with a value P/S ratio of just 0.4.

4.       TRI Pointe Group (TPH - Free Report) is a smaller home builder based in Irvine, California. It builds single family homes in 10 states. Shares have fallen 32.6% year-to-date. It has a P/S ratio of only 0.4.

5.       SPX Corporation (SPXC - Free Report) operates in heating, ventilation and cooling in 17 countries. Shares have been hit hard, falling 34% in 2020. But it has a P/S ratio of just 0.9.

What else should you know about finding companies with low P/S ratios?

Tune into this week’s podcast to find out.

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