U.S. Markets closed

5 Top Value Picks to Counter Recent Stock Market Softness

Nalak Das

After an exponential rise in 2019, Wall Street has entered into a correction mode early this year, following the U.S. airstrikes in Iran that killed its military general Qasem Soleimani. After this development, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — declined 1%, 0.6% and 0.3%, respectively, in the last three trading days.

However, the stable economic fundamentals of the United States have raised the possibility of the recent stock market volatility being a transitory phase and markets continuing their long-term uptrend once the interim trade deal between the United States and China is signed mid-January.

While markets are likely to remain range bound until the signing of the phase-one trade deal, the downside potential will be limited owing to U.S. economic strength. Nonetheless, volatile trading may become a regular phenomenon in Wall Street. At this stage, it makes good sense to buy those stocks on the dip that could prove to be valuable once the rally resumes.

Geopolitical Conflict in Middle East Intensifies

On Jan 7, Pentagon confirmed that Iran launched more than a dozen ballistic missiles against U.S. military and coalition forces at Al-Assad and Irbil military bases in Iraq. The airstrike was in retaliation to the U.S. killing of Iran’s immensely popular top-ranked general, Qasem Soleimani, on Jan 2. Moreover, on Jan 5, Iran announced that it would no longer respect the 2015 nuclear deal on the number of uranium enrichment centrifuges.

After the attack, Iranian Foreign Minister Mohammad Javad Zarif tweeted “we do not seek escalation or war, but will defend ourselves against any aggression.” Meanwhile, President Donald Trump tweeted that “All is well! Missiles launched from Iran at two military bases located in Iraq.”

Earlier, Trump had tweeted that the U.S. government has targeted 52 sites very important to Iran and Iranian culture, if that country retaliates and strikes any “Americans, or American assets.” Investors remained busy judging how the U.S.-Iran conflict will affect stock markets.

Volatility resurfaced in Wall Street in the last three trading days as market participants shifted to safe haven assets such as U.S. government bonds, precious metals like gold and currency like Japanese yen. Meanwhile, crude oil prices have skyrocketed in apprehension of a potential oil supply disruption. Higher oil prices will hinder the economic revival process of several important emerging markets.

Interim Trade Deal and Solid Economic Data: Major Drivers

Chinese officials are set to arrive in Washington on Jan 13 in order to sign an interim trade pact known as the phase-one trade deal. Last week, Donald Trump said that he will sign the preliminary trade deal on Jan 15. The deal is expected to at least prevent further escalation of tariff war between the two largest trading countries of the world.

The Institute for Supply Management reported that the U.S. services (non-manufacturing) index jumped to a four-month high of 55% in December from 53.9% in November. The figure was higher than the consensus estimate of 54.2%. Notably, the services sector constitutes 70% of the GDP. Any reading above 50 indicates expansion of service activities and a reading of 55 or more reflects exceptional performance.

The Department of Commerce reported that the U.S. trade deficit declined sharply by 8.2% to $43.1 billion in November, marking the smallest deficit since October 2016. Exports grew 0.7% to $208.6 billion in November while imports dropped 1% to $251.7 billion.

Our Top Picks

At this stage, investors should be prepared to minimize fluctuations in their portfolio and consequently rebalance it with suitable financial assets to maintain stability. Thus, it would be prudent to pick up value stocks with a favorable Zacks Rank.

We have narrowed down our search to five stocks. Each of them carries a Zacks Rank #1 (Strong Buy) and has a Value Score of A or B. You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows price performance of our five picks in the past three months.

H&R Block Inc. HRB provides assisted income tax return preparation, do-it-yourself tax, and virtual tax preparation services and products to the general public primarily in the United States, Canada and Australia. It offers assisted income tax return preparation and related services through a system of retail offices operated directly by the company or by franchisees.

The forward price-to-earnings (P/E) ratio for the current financial year is 9.6, lower than the industry average of 14.2. It has a PEG ratio of 0.96, lower than the industry average of 1.39. The company has expected earnings growth of 14% for the current year (ending April 2020). The Zacks Consensus Estimate for the current year has improved by 21.9% over the last 60 days.

Berry Global Group Inc. BERY manufactures and distributes nonwoven specialty materials, engineered materials and consumer packaging products. Its services include personal care, healthcare as well as beverage and food markets in South America, North America, Asia and Europe.

The forward P/E ratio for the current financial year is 11, lower than the industry average of 16.3. It has a PEG ratio of 1.10, lower than the industry average of 1.89. The company has an expected earnings growth rate of 19.7% for the current year (ending September 2020). The Zacks Consensus Estimate for the current year has improved by 6.8% over the last 60 days.

Emergent BioSolutions Inc. EBS is focused on the provision of specialty products for civilian and military populations that address accidental, intentional, and naturally occurring public health threats. Its products address PHTs, including chemical, biological, radiological, nuclear, and explosives; emerging infectious diseases; travelers' diseases; and opioids.

The forward P/E ratio for the current financial year is 15.1, lower than the industry average of 25.6. It has a PEG ratio of 0.76, lower than the industry average of 1.67. The company has expected earnings growth of 16.5% for the current year. The Zacks Consensus Estimate for the current year has improved by 5.6% over the last 60 days.

Pilgrim's Pride Corp. PPC is engaged in the production, processing, marketing and distribution of fresh, frozen, and value-added chicken products in the United States, the United Kingdom, Europe, and Mexico.

The forward P/E ratio for the current financial year is 12.7, lower than the industry average of 14.7. It has a PEG ratio of 0.65, lower than the industry average of 1.17. The company has expected earnings growth rate of 39.9% for the current year. The Zacks Consensus Estimate for the current year has improved by 8% over the last 60 days.

Alexion Pharmaceuticals Inc. ALXN is a biopharmaceutical company focused on the development and commercialization of life-transforming drugs, for the treatment of patients with ultra-rare disorders.

The forward P/E ratio for the current financial year is 9.4, lower than the industry average of 25.6. It has a PEG ratio of 0.81, lower than the industry average of 1.67. The company has an expected earnings growth rate of 9.3% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.4% over the last 60 days.

The Hottest Tech Mega-Trend of All

Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Berry Global Group, Inc. (BERY) : Free Stock Analysis Report
 
Pilgrim's Pride Corporation (PPC) : Free Stock Analysis Report
 
Emergent Biosolutions Inc. (EBS) : Free Stock Analysis Report
 
Alexion Pharmaceuticals, Inc. (ALXN) : Free Stock Analysis Report
 
H&R Block, Inc. (HRB) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.