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Exploit the Short-Term Dip With These 5 Great Value Picks

Swarup Gupta

On Aug 5, U.S. stocks suffered their worst single-day decline of the year. The immediate trigger for such reverses was an escalation in trade tensions between the United States and China. President Trump’s decision to impose fresh tariffs on Chinese imports sparked off the latest confrontation between the two countries.

Things came to a head when China retaliated fiercely, allowing the yuan to plunge to its lowest level in more than a decade. But the equity-market rout actually began when Fed Chair Jerome Powell indicated after the recent rate cut that a long reduction cycle was not about to begin.

Despite recent reverses, leading market watchers believe that the carnage will only continue for a few more weeks. The U.S. economy remains robust and is unlikely to slip into a near-term recession. This is why it makes sense to benefit from the dip by adding select value picks to your portfolio.

S&P 500 Loses $1.4 Trillion in Less Than a Week  

Four devastating trading days were all it took to erase $1.4 trillion of the S&P 500’s stock value. The Fed’s first rate cut in more than a decade had been more or less priced in by the markets. But Powell’s characterization of the reduction as simply a “midcycle adjustment” created panic among investors.

Powell went on to elaborate on this point, stressing that the rate cut was not the beginning of a longer cycle of reductions. As a result, the S&P 500 closed 1% lower on Jul 31. The plunge for equities worsened the very next day after Trump brought the U.S.-China trade war truce to an end.

The U.S. President said he was imposing a 10% tariff on $300 billion worth of Chinese goods from Sep 1. The announcement caught investors off guard causing the Dow to suffer its worst weekly decline of 2019.

China’s decision to allow the yuan to plunge to a record low on Aug 5 only worsened matters. The country’s government also asked state-owned enterprises to cease purchases of U.S. agricultural goods and threatened to levy tariffs on goods it had already imported. As a result, the S&P 500 closed the day nearly 3% lower.

Tough Weeks Ahead, Rebound Likely

According to Mislav Matejka, JPMorgan’s JPM head of global and European equity, markets are likely to suffer a few more miserable weeks. But Matejka thinks the decline is a good opportunity for investors and they should “look to buy the dip.”

In a note to investors, Matejka stressed that the current difficult phase was “an opportunity to add” stocks to investor portfolios. He said that it was extremely likely that equities across the world would “advance further before the next U.S. recession strikes.”

Matejka also thinks that it was “premature to expect a recession over the next quarters.” This is because the labor market remains robust and a recession has never started in the United States when “the unemployment rate was falling.” In fact, earnings have exceeded expectations and several companies have raised their yearly guidance.

Our Choices

Recent equity market reverses have led to widespread panic among investors. But analysts and market watchers think that though the pain will continue for a few more weeks, a rebound will eventually follow. The U.S. economy remains largely robust and recent earnings have also exceeded expectations.

This is why it would be a good idea to pick up undervalued stocks on the dip. Our selection is also backed by a good Zacks Value Score and Zacks Rank.

We narrowed down our choices with the help of our new Style Score System.

Our research shows that stocks with a Value Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best opportunities in the value-investing space.

Each of our picks has a Zacks Rank #1 (Strong Buy) and a Value Score of A. You can see the complete list of today's Zacks #1 Rank stocks here.

Delta Air Lines DAL is a leading provider of scheduled air transportation for passengers and cargo throughout the United States and around the world.

Delta Air Lines’ forward price-to-earnings ratio (P/E) for the current financial year (F1) is 8.54, lower than the industry average of 9.64. It has a PEG ratio of 0.48, lower than the industry average of 0.50.

JetBlue Airways Corporation JBLU is a passenger airline that focuses on providing high-quality customer service.

JetBlue has a P/E (F1) of 9.52x, lower than the industry average of 9.64. It has a PEG ratio of 0.42, lower than the industry average of 0.50.

First American Financial Corporation FAF serves homebuyers and sellers, real estate professionals, loan originators and servicers, commercial property professionals, homebuilders and others involved in residential and commercial property transactions, with products and services specific to their needs.

First American Financial has a P/E (F1) of 11.70x, lower than the industry average of 15.28. It has a PEG ratio of 1.06, lower than the industry average of 1.43.

PennyMac Financial Services, Inc. PFSI provides financial services primarily in the United States.

PennyMac Financial Services has a P/E (F1) of 8.44x, lower than the industry average of 10.08. It has a PEG ratio of 0.84, lower than the industry average of 1.62.

BHP Group BBL is engaged in production of minerals which includes iron ore, metallurgical coal, copper and uranium as well as oil, gas and energy coal.

BHP Group has a P/E (F1) of 9.53x, lower than the industry average of 13.93. It has a PEG ratio of 2.30, lower than the industry average of 3.16.

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JetBlue Airways Corporation (JBLU) : Free Stock Analysis Report
 
Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
 
JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report
 
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First American Financial Corporation (FAF) : Free Stock Analysis Report
 
BHP Billiton PLC (BBL) : Free Stock Analysis Report
 
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