5 Keys to Unlocking the Secrets of Value Investing
Welcome to Episode #67 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.
With growth stocks continuing to dominate Wall Street every day, Tracey decided to go back to her roots as a value investor and get a value investing refresher.
She dug out one of her favorite value investing books: The Little Book of Value Investing by Christopher Browne.
The book gives lots of great value investing tips and strategies which Tracey condensed into 5 key strategies you should know to unlock the secrets of value investing.
Some of them are basic and obvious, but in this time when Wall Street is willing to pay 100x earnings without hardly a glance, it’s important to stay the course.
5 Keys to Unlocking the Secrets of Value Investing
1. Buy stocks on sale.This seems obvious, right? But most investors fail at this first step. Stocks are one of the few things that people do NOT buy when they go on sale.
2. Remember Buffett’s first and second rules of investing and apply them when you buy.Watch debt levels. Keep your portfolio diversified and forget the noise.
3. Buy the earnings.There’s a reason value investors buy companies with low P/E ratios.
4. Buy when insiders buy.If the stock is at multi-year lows, wouldn’t the insiders want to dive in and buy?
5. Dig deeper into the fundamentals.Watch for fraud stories or media articles about a company’s character. Avoid value traps by buying companies with earnings growth. Listen to conference calls to find out what’s really going on with the business.
And, most importantly of all, a value investor must have patience. Value stocks don’t turn around overnight.
Screening for Value Stocks to Buy Now
Tracey ran a screen using a low P/E and she looked for earnings growth.
She also added the Zacks Rank and only looked at those with #1 (Strong Buy) ranks. That means that the earnings estimates are likely on the rise.
The screen gave her 29 stocks.
3 Value Stocks with Earnings Growth
1. United Rentals URI has a forward P/E of just 14.1. This rental tool company is expected to grow earnings by 21% in 2017 and 17% in 2018.
2. Western Digital WDC is dirt cheap. It trades with a forward P/E of just 6.7. The storage maker is expected to grow earnings by 42% in fiscal 2018 but analysts see a decline of 8% in fiscal 2019.
3. Pilgrim’s Pride PPC, the largest chicken producer in the US, reported robust third quarter sales in the United States with Mexico also performing better than expected last quarter. It has a forward P/E of 11.6 and earnings are expected to grow 49% in 2017 and another 8% in 2018.
It’s not easy being a value investor in a market dominated by high growth names.
But value investing has been, historically, one of the best investing strategies.
What else should you know about buying value stocks right now?
Tune into this week’s podcast to find out.
[In full disclosure, Tracey owns shares of URI in her personal portfolio.]
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Western Digital Corporation (WDC) : Free Stock Analysis Report
United Rentals, Inc. (URI) : Free Stock Analysis Report
Pilgrim's Pride Corporation (PPC) : Free Stock Analysis Report
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