Welcome to Episode #123 of the Value Investor Podcast
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio service, shares some of her top value investing tips and stock picks.
The S&P 500 and the NASDAQ both entered into bear market territory, falling more than 20% from their all-time highs earlier in 2018.
December has been atrocious for stocks with investors facing their biggest December losses since the Great Depression.
But with this sudden plunge, that also means that some stocks are on sale, with some falling 40% or even 50% year-to-date.
But finding good quality stocks on sale isn’t so easy.
Screening for Stocks on Sale
Finding stocks on sale is pretty simply if you deploy the Zacks Rank to assist. It will help weed out those with attractive earnings estimate revisions. Look for Zacks Ranks of #1 (Strong Buy), #2 (Buy) or even #3 (Holds) to get the widest possible group of stocks.
To narrow it further, and to find the “sale” part of the screen, use a lower than normal P/E. In this case, the screen was for a P/E of 8 or under. That’s dirt cheap which likely means the stock has been sold off.
To make sure that there is good cash flow management, the screen also included a dividend that was yielding at least 2%.
The screen yielded 185 stocks. That’s a hefty screen and provided a lot of quality names.
Stocks on Sale that Also Pay a Big Dividend
1. Citigroup C has plunged over 30% year-to-date and is now extremely cheap. This big cap bank has a forward P/E of just 7.4 and a dividend yielding 3.7%.
2. Huntsman Corp. HUN has sunk 47% year-to-date as investors have fled the chemical company stocks. It now trades with an incredible P/E of just 5.4.
3. Macy’s M is actually still up over 9% year-to-date but remains dirt cheap, with a forward P/E of 6.7 and a dividend yielding 5.4%.
4. MetLife MET has fallen 24% year-to-date which is surprising for an insurance company stock. But it’s now paying a dividend yielding 4.4% and trades with a forward P/E of only 7.1.
What About FAANG?
Is FAANG on sale yet?
Apple AAPL has been a value stock for several years but even it has gotten much cheaper in recent weeks. It now sports a forward P/E of 11, wherein it had been over 15 before the sell off. It’s paying a dividend yielding 2%.
While this isn’t as cheap as the screen that was run above, it’s getting more attractive to value investors and has gone on “sale” compared to just 2 months ago.
Some of the other FAANG stocks, despite the sell off, simply aren’t cheap enough to truly be on “sale” just yet.
Which of the FAANGs should you keep on your “sale” short-list?
Tune into this week’s podcast to find out.
[In full disclosure, the author of this article owns shares in AMZN, FB and RH in her personal portfolio.]
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Citigroup Inc. (C) : Free Stock Analysis Report
Huntsman Corporation (HUN) : Free Stock Analysis Report
Apple Inc. (AAPL) : Free Stock Analysis Report
MetLife, Inc. (MET) : Free Stock Analysis Report
Macy's, Inc. (M) : Free Stock Analysis Report
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