Find Top-Ranked Value Stocks to Start Q2 with this Screen
The technology-heavy Nasdaq surged roughly 16% in the first quarter of 2023. The strong start to the year was driven by some of the biggest growth names on Wall Street such as Tesla and Nvidia. The S&P 500 was no slouch either, with the benchmark up around 7% YTD.
The bullish start to the year pushed the S&P 500 and the Nasdaq to trade above their 50-day and 200-day moving averages. Both the benchmark and the tech-filled index have also crossed other technical levels that have the bulls salivating for more.
The market does, of course, face unknowns on multiple fronts, from inflation and interest rates to corporate earnings and the jobs market. Despite legitimate concerns and disputes on what the Fed will do next, Wall Street is growing increasingly certain that Jay Powell will be far less hawkish for the remainder of the year.
That said, the tech-driven upbeat start to the year has sent many stocks to some bloated valuations and overheated technical levels. This backdrop could see some selling in the near term. On top of that, it might mean investors should try to avoid chasing some of these overbought names in the coming weeks.
Given where the market stands at the start of April, investors likely want to find highly-ranked Zacks stocks, which means they are experiencing positive earnings estimate revisions, that also offer great value.
Today we utilize a Zacks screen that will help investors find stocks that offer a great combination of value and positive earnings revisions.
Screen Basics
The screen we are digging into today comes loaded with the Research Wizard and aims to sort through highly-ranked Zacks stocks to find some of the top value names.
This value-focused screen searches only for stocks that boast Zacks Rank #1 (Strong Buys) or #2 (Buys). It also focuses on stocks with price-to-earnings (P/E) ratios under the median for its industry. The screen also looks for stocks with price-to-sales (P/S) ratios under the median for its industry. These efforts help lock in relative value compared to peers, since basing value off the wider market is not always the most useful tool.
The screen then digs into quarterly earnings rates above the median for its industry. This particular Zacks screen also uses a special blend of upgrades and estimates revisions to select the best seven stocks in this list.
The screen basics are listed below…
Only Zacks Rank #1 (Strong Buy) or #2 (Buy) Stocks
P/E - Under the Median for its Industry
P/S - Under the Median for its Industry
Percentage Change Act. EPS Q(0)/Q(-1)
Rating Change and Revisions Factors (to help narrow the list to the 7 best stocks in this list)
This strategy comes loaded with the Research Wizard and it is called bt_sow_value_method1. It can be found in the SoW (Screen of the Week) folder.
The screen is pretty simple, yet powerful. Here are two of the seven stocks that made it through this week's screen…
PVH (PVH)
PVH (PVH) is a clothing giant that operates across the wholesale, retail, digital commerce, and licensing channels. PVH has grown through strategic acquisitions and organic expansion. The firm’s portfolio of lifestyle brands includes Calvin Klein and TOMMY HILFIGER, which represent around 90% of its revenue, as well as others. PVH boasts a global reach from North America and Europe to Asia Pacific and beyond.
PVH topped our Q4 earnings and revenue estimates near the end of March. More importantly, PVH provided impressive upbeat EPS guidance, with its FY23 outlook now up 11% and FY24's 9% improved to help it land a Zacks Rank #2 (Buy) right now. Zacks estimates call for solid top and bottom line growth both this year and next.
PVH is currently trading at a 40% discount to its own median at 8.8X earnings. This also marks 32% value compared to its industry. PVH shares have popped 20% in the last year and 25% in 2023.
Playa Hotels & Resorts (PLYA)
Playa Hotels & Resorts N.V. is a leading owner, operator, and developer of all-inclusive resorts in prime beachfront locations in popular vacation destinations in Mexico and the Caribbean. Playa owns and/or manages a total portfolio consisting of 25 resorts in Mexico, Jamaica, and the Dominican Republic. PLYA shares have surged 420% in the past three years compared to its industry’s 100% climb.
More recently, the stock is up 60% over the trailing six months to trade at around $9.30 per share. Despite its climb and industry outperformance, Playa Hotels & Resorts is trading at 16.4X earnings, which marks a 22% discount to its industry and 70% value vs. its own year-long highs.
PLYA’s upbeat earnings revisions help it land a Zacks Rank #1 (Strong Buy) right now, with its FY23 estimate up 17% in the last 60 days alone. And Zacks estimates call for Playa Hotels & Resorts to post strong top and bottom line expansion in both 2023 and 2024.
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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance/.
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