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The Secret Value Stock Screen to Use Now

Tracey Ryniec
  • (0:45) - Are You Willing To Pay To Much For Growth Stocks?
  • (3:25) - Stock Screener Criteria For Top Value Stocks
  • (8:50) - Tracey’s Top Stock Picks
  • (15:45) - Episode Roundup: ALL, BBY, WMT, SYY, CNC
  •                 Podcast@Zacks.com

Welcome to Episode #134 of the Value Investor Podcast

Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.

With stocks still rallying to start 2019, it’s been hard for value investors to find true value stocks.

The old price-to-earnings screens simply aren’t going to cut it in this type of market.

That’s why value investors have to take a fresh look at how they search for value stocks.

How Do You Screen for Value?

Most value investors simply use the P/E or the PEG when looking for value stocks. There’s nothing wrong with those screens.

But one of Tracey’s favorite value fundamentals is the price-to-sales (P/S) ratio.

A P/S ratio under 1.0 means that an investor is getting the sales on sale. Investors are paying less than the sales are worth for the sales.

The Secret Screen for Value

The secret screen includes a P/S ratio under 1.0 as well as the Zacks Rank of #1 (Strong Buy) and #2 (Buy). These should hopefully be stocks that are seeing rising earnings estimates.

We want only the best and the Zacks Rank allows us to narrow the universe.

This screen returned 176 stocks.

That’s a lot to dig into, so a market cap above $500 million was also added to exclude the microcaps.

The screen then returned 125 stocks.

That gave us plenty of choice.

5 Stocks with Attractive P/S Ratios

1.       Allstate ALL, the property insurer, has a P/S ratio of just 0.8. But it’s also cheap on a P/E basis, with a forward P/E of 10.2. Shares have been weak in 2019, falling 8.1% year-to-date. Could this be a buying opportunity?

2.       Best Buy BBY shares are down 12.8% year-to-date which has pushed them into the value category. It has a P/S ratio of just 0.4. It also pays a dividend, currently yielding 2.9%.

3.       Sysco SYY, the food distributor, has a P/S ratio of just 0.6. Earnings for fiscal 2019 are expected to rise 8.3% and another 10.4% in fiscal 2020. Investors also get a dividend, currently yielding 2.4%.

4.       Walmart WMT is cheap by a P/S ratio metric as it’s P/S is just 0.6. However, it’s forward P/E is on the high side, at 21. Do you buy the cheap sales even though you’re paying more for the earnings? Walmart does reward shareholders with a dividend yielding 2.1%.

5.       Centene Corporation CNC is a health insurer. The health insurers/HMOs have been hit hard in 2019 on fears of “Medicare-for-all” even though there is no actual legislation for it. Year-to-date, the shares are up just 2.4%. It’s cheap with a forward P/E of 14.2 and a P/S ratio of just 0.4. Earnings are also expected to rise 19.5% in 2019.

What else should you know about screening for value stocks in 2019?

Listen to this week’s podcast to find out.

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Sysco Corporation (SYY) : Free Stock Analysis Report
 
The Allstate Corporation (ALL) : Free Stock Analysis Report
 
Centene Corporation (CNC) : Free Stock Analysis Report
 
Best Buy Co., Inc. (BBY) : Free Stock Analysis Report
 
Walmart Inc. (WMT) : Free Stock Analysis Report
 
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