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The infectious coronavirus that is spreading fast around the globe has clearly taken a toll on global financial markets. In the United States, major benchmarks suffered severe losses in the past few weeks as investors continue to flee stocks for safer grounds, such as precious metals.
Amid the current market gyration, investors could instead consider value stocks that are trading far lower than what they are worth.
Markets Dictated by Coronavirus Fears and Sliding Oil Prices
In the Mar 9 trading session alone, all three major U.S. indexes declined more than 7%, marking the biggest single-day loss since 2008. The U.S. equities now inch dangerously close to bear-market territory. The rising number of infected cases and the death toll are affecting economic activity around the world and thus weighing on investors’ sentiment.
Additionally, the drop in oil prices because of lower demand is also stoking investors’ woes. Oil prices registered their biggest one-day decrease on Mar 9 since the Gulf War (1991). West Texas Intermediate crude for April delivery closed 25% lower at $31.13 a barrel on Monday. May Brent crude, the global benchmark, also went 24% south to hit $34.36 a barrel on the same day.
This sharp decline in oil prices is a continuation of Friday’s losses, which were because of the Organization of the Petroleum Exporting Countries and their allies’ (OPEC+) inability to implement a production cut for fighting the sliding oil prices.
Since Russia opposed oil production ramp-downs at the Vienna meet earlier this month, Saudi Arabia slashed oil prices over the weekend and is preparing to raise productivity in a bid to fight Russia’s market share, per The Wall Street Journal.
Financial Markets May Recover Ahead
However, several steps to boost the flattering global economies are already in motion. For example, President Donald Trump had earlier this week stated that he would seek financial relief for hourly-wage workers and businesses in the country that faced the coronavirus heat. The Trump administration is expected to meet on Mar 10 to discuss an economic stimulus package.
This package may comprise a payroll tax reduction and relief for workers who earn hourly wages to ensure that they won't miss paychecks.
For small businesses, Trump said that his administration will be creating loans and work with the worst-hit industries like the airline and cruise, which have been hurt over fears of the virus. The White House has also invited top Wall Street executives later this week to brainstorm how to deal with the current crisis.
On Mar 6, the president approved an $8.3-billion bill to battle against the coronavirus outbreak. The bill consists of funding efforts to develop a vaccine and aid local and state governments’ preparedness. (Read more)
Moreover, the declaration of an emergency by several states in the United States, such as New York, California, Oregon, Kentucky, Maryland, Utah and New Jersey is also a step toward limiting the spread of the disease.
Similar steps have been taken by Italy, which recorded the second-highest number of infected cases following China. Over the weekend, the Italian government enforced a lockdown, quarantining its northern region, closing schools, shutting down events and imposing strict rules on holding public interactions and gatherings of more than 10 million people.
Apart from this, the global central banks’ efforts to boost economies are also expected to yield results. The Federal Reserve unexpectedly slashed its benchmark rates to a 1-1.25% range last week, given the gravity of the prevalent situation after it noted that the coronavirus posed “evolving risks to economic activity”.
In addition, central banks of Malaysia and Australia already trimmed their benchmark rates. What’s more, the European Central Bank (ECB) and Bank of Japan (BOJ) took their interest rates into the negative territory. These actions could provide stocks with adequate room to bounce back.
Undervalued Stocks Are Best Bets Right Now
Considering the current market condition, undervalued stocks make the cut for investments. This is because the said “undervalued” company’s fundamentals are strong and this strength will guide its performance in the long term.
For example, one may consider a stock’s Price-to-Earnings ratio (P/E ratio) to evaluate if the stock is undervalued. A lower P/E ratio indicates an undervalued company, which means that investors could reap profits ahead should they buy the stock.
4 Best Value Stocks to Pocket
We therefore handpicked four stocks for you that could score as ideal investments. These stocks may have declined over a month but sport a Zacks Rank #1 (Strong Buy) and carry a favorable Value Score.
The Zacks Consensus Estimate for each of the companies’ current-year earnings has moved north in the past two months and the stocks too have a favorable earnings growth rate for the current year.
Medallion Financial Corp. MFIN is a finance company offering consumer loans, commercial loans and secured mezzanine loans among other services. The Zacks Consensus Estimate for Medallion Financial’s current-year earnings has moved 4.8% upward in the past 60 days. The company’s expected earnings growth rate for the current year is 1,350%.
Shares of this company, which belongs to the Zacks Financial - SBIC & Commercial Industry industry, has declined 40.6% in the past month. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here. Medallion Financial has a price-to-earnings ratio (P/E) of 5.94 compared with 9.10 for the industry. The company possesses a Value Score of A.
Mr. Cooper Group Inc. COOP is a provider of servicing, origination and transaction-based services that are mostly related to single-family residences. The Zacks Consensus Estimate for Mr. Cooper’s current-year earnings has moved 74% north in the past 60 days. The company’s expected earnings growth rate for the current year is 14.5%.
Shares of this company, which belongs to the Zacks Financial - Consumer Loans industry, has declined 30.6% over a month. Mr. Cooper has a price-to-earnings ratio (P/E) of 2.63, compared with 7.00 for the industry. The company has an attractive Value Score of A.
RCI Hospitality Holdings, Inc. RICK is a company that engages in hospitality and related businesses. The Zacks Consensus Estimate for RCI Hospitality’s current-year earnings has moved 2.7% north in the past 60 days. The company’s expected earnings growth rate for the current year is 13.9%.
Shares of this company, which belongs to the Zacks Leisure and Recreation Services industry, has declined 22.7% over a month. RCI Hospitality has a price-to-earnings ratio (P/E) of 6.67 compared with 16.70 for the industry. The company has an impressive Value Score of A.
Evercore Inc. EVR is an independent investment banking advisory firm. The Zacks Consensus Estimate for Evercore’s current-year earnings has moved 1% north in the past 60 days. The company’s expected earnings growth rate for the current year is 15.6%.
Shares of this company, which belongs to the Zacks Financial - Investment Bank industry, has plunged 34.2% in a month’s time. Evercore has a price-to-earnings ratio (P/E) of 6.93 compared with 12.50 for the industry. The company possesses a Value Score of A.
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Evercore Inc (EVR) : Free Stock Analysis Report
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MR. COOPER GROUP INC (COOP) : Free Stock Analysis Report
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