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Is Market Pricey? 5 Cheap Stocks With Solid Estimate Revisions

Sanghamitra Saha

U.S. markets have seen a great start to 2019, thanks to a dovish Fed and U.S.-China trade optimism. The S&P 500 has recovered sharply this year from the Christmas lull and has touched 2,800 for the first time in nearly four months. The index also recorded its ninth weekly gain in the last 10 weeks. And the Dow Jones hit its 26,000 mark in late February for the first time since Nov 9.

The S&P 500 returned 3.0% in February on top of 7.9% in January. This helps the key equity gauge to log the fifth largest gain to start a year in the history of the S&P 500 and the best start since 1987.

Are Stocks Overvalued?

After the astounding gains, thoughts of a correction in the market or overvaluation concerns are justified. This is especially true given that stocks have become 17% pricier in the last two months while profits are fading.

Analysts’ earnings estimates for Q1 and Q2 of 2019 are declining. The consensus estimate for  earnings is now likely to decline 2.7% for Q1, and rise just 0.7% for the June quarter, “representing a downward swing of 4.2 points in the outlook since the start of the year,” per an article published on Fortune.  

Analysts are deducing operating EPS, which is normally around 15% lower than the GAAP. The blend of declining earnings projections and the S&P’s two-month jump has boosted the forward P/E from 15.1x at the start of the year to 17.7x right now, per some analysts.

Meanwhile, global growth worries remain rife. Most of the developed economies, especially in Europe and some emerging economies, have been suffering from a slowdown. Though there were signs of improvement in 2018, U.S.-China trade tensions are not resolved yet. Even if the duo manages to strike a deal, the hope is currently priced in at the current level. Some analysts are of the view that any real deal appears a 'sell the news' opportunity for investors right now.

How About Low P/E Stocks With PositiveEarnings Revisions?

Having said this, we would like to note that the Fed is acting dovish and this should give some warmth to equity investing in the near term. Investors can thus definitely tap for stocks that have lower forward P/E than the S&P 500 (17.7x) and have witnessed an uptick in EPS growth estimates for the current year in the last 30 days. These stocks boast a Zacks Rank #1 (Strong Buy) or 2 (Buy).

City Holding Company CHCO - P/E 14.93x

This Zacks Rank #1 multi-bank holding company provides diversified financial products and services to consumers and local businesses. It comes from a top-ranked Zacks industry (top 19%).

 

Consumer Portfolio Services Inc. CPSS - P/E 6.01x

This Zacks Rank #2 consumer finance company specializes in purchasing, selling and servicing contracts with purchases of vehicles that are subprime borrowers and are unable to obtain credit from traditional sources. It belongs to a top-ranked Zacks industry (top 32%).

DHI Group Inc. DHX - P/E 10.86x

The Zacks Rank #1 company offers specialized websites focused on select professional communities. It comes from a top-ranked Zacks industry (top 12%) and sector (top 31%).

SunCoke Energy Inc. SXC - P/E 14.39x

The Zacks Rank #2 company is a producer of metallurgical coke in the Americas. The company acquires, owns, and operates the coke making and coal mining operations. Its coke making facilities are in the United States and Brazil. It comes from a top-ranked Zacks industry (top 13%).  

Radiant Logistics Inc. RLGT - P/E 12.68x

Radiant Logistics is executing a strategy of building a global transportation and supply chain management company through organic growth and strategic acquisitions. The stock has a Zacks Rank #1. It hails from a top-ranked Zacks industry (top 7%).

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DHI Group, Inc. (DHX) : Free Stock Analysis Report
 
City Holding Company (CHCO) : Free Stock Analysis Report
 
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