The beginning of 2016 was marked by significant volatility. But there have been quite a few positive surprises in the back half of the year. Of these, the ones that influenced the investment market include the victory of Donald Trump in the U.S. presidential election, the greenback hitting a 13-year high, the Fed’s rate hike, and last but not least, the recovery in oil price.
While the world is preparing for the New Year, investors are hoping for a better time to bet on stocks to recoup the losses incurred this year and record gains.
Why Value Investing?
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price” – Warren Buffett
In a nutshell, Value Investing is all about buying shares of companies whose market value is lower than its intrinsic value. These stocks are available at negligible prices in comparison to the stocks of similar companies or the market as a whole. In contrast to the expensive growth stocks, value stocks have the potential to make more money as their prices are currently discounted and are yet to reach a level of saturation.
Nevertheless, identifying a value stock has never been a cakewalk. In fact, when the market is weak, value investment is the way to go as most of the fundamentally good stocks fall within the discounted range. But it is not so easy to figure out how it works when the stocks are already gaining strength on the back of bullish trends.
This situation may often lead to “value traps” — a situation when these value picks start to underperform over the long run as the temporary problems become persistent.
To avoid such value traps, we suggest the investors to take help of our screening criteria andaccess the key metrics to select stocks that are currently trading cheap and have huge future prospects.
Our Choices
Zacks has designed the new Style Score System to compare each parameter of a stock with the peer group for an analysis of whether the stock is attractive from the value perspective.
We have zeroed in on four stocks that sport a Zacks Rank #1 (Strong Buy) or 2 (Buy) with VGM Score of ‘A’ or ‘B.’ The VGM score (V stands for Value, G for Growth and M for Momentum) essentially highlights critical factors in a stock that have the potential to drive its price higher in the near term. Additionally, these stocks are graded “A” in terms of Value and has low P/E and P/S ratios that makes them great bargains.
This apart, a low P/E (price/earnings) indicates a decline in a stock’s price or an improvement in its earnings performance. Value investors will typically look for stocks with P/E ratios below 20. Meanwhile, P/S (price/sales) is calculated as price divided by sales and the lower the ratio, the better for value stocks.
Accordingly, we have chosen stocks that have P/E ratio less than 13 and P/S ratio less than 1.
Here we take a sneak peek at four companies which are great bargains and poised for stellar gains in 2017.
Dirt Cheap Value Stocks to Scoop Up in 2017: Braskem SA (ADR) (BAK)
Headquartered in Brazil, Braskem SA (ADR) (BRK) is a subsidiary of Odebrecht S.A. The company sports a Zacks Rank #1 and Value Style Score of “A.” The company’s VGM score is also “A.” It has a P/E of 6.04%, much lower than the industry P/E of 20.05%. Braskem has a P/S of 0.58%, compared to the industry P/S of 0.86%.
Over the past six months Braskem represents a solid return of 71.9%, way better than the S&P 500’s return of almost 7.3%. Additionally, the estimate revision trend for the next year seems favorable for the stock, with two estimates moving north in the last month, compared to no movements in the opposite direction.
Dirt Cheap Value Stocks to Scoop Up in 2017: Deutsche Lufthansa AG (ADR) (DLAKY)
Headquartered in Cologne, Germany, Deutsche Lufthansa AG (ADR) (DLAKY) operates as an aviation company. The company has a P/E of 4.9%, compared to the industry P/E of 10.3%. Its P/S of 0.19% also compares favorably with the industry P/S of 0.95%. Deutsche Lufthansa sports a Zacks Rank #1, has a Value Style Score of “A” and a VGM score of “A.” You can see the complete list of today’s Zacks #1 Rank stocks here.
Over the last six months, Deutsche Lufthansa represented a solid return of almost 16%, better than the S&P 500’s over the same time frame. Meanwhile, the estimate revision trend for the next year seems bullish at the moment with one estimate moving up in the last two months and no downward revisions.
Forget the gym, finding great stocks should be your New Year’s resolution!
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Dirt Cheap Value Stocks to Scoop Up in 2017: Alliance Holdings GP, L.P. (AHGP)
Headquartered in Tulsa, OK, Alliance Holdings GP, L.P. (AHGP) produces and markets coal primarily to utilities and industrial users in the U.S. The company sports a Zacks Rank #1 and Value Style Score of “A.” The stock also sports a VGM score of “B.” This apart, Alliance Holdings has a P/S of 0.91% and a P/E of 10.05%.
Meanwhile, over the last six months Alliance Holdings returned almost 36.8%, much better than S&P 500’s return in the same time period. Coming to the estimate revision trends for the next year, one estimate moved up in the last two months, instilling confidence on the stock.
Dirt Cheap Value Stocks to Scoop Up in 2017: Perry Ellis International, Inc. (PERY)
Headquartered in Miami, FL, Perry Ellis International, Inc. (PERY) designs, sources, markets, and licenses apparel products. Perry Ellis carries a Zacks Rank #2 and Value Style Score of “A.” The company has a VGM score of “A” and a P/S of 0.44%, compared to the industry P/S of 1.22%. The company also has a P/E of 12.48%, compared to the industry P/E of 16.14%.
Over the past six months, Perry Elis represented a promising return of almost 23.2%, better than the S&P 500’s performance over the same time frame. Further more solid estimate revision trends for the next year is a significant positive for the stock.
Notably, two estimates moved north in the last two months, compared to no movements in the opposite direction.
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PERRY ELLIS INT (PERY): Free Stock Analysis Report
LUFTHANSA -ADR (DLAKY): Free Stock Analysis Report
BRASKEM SA (BAK): Free Stock Analysis Report
ALLIANCE HLDGS (AHGP): Free Stock Analysis Report
