Though the earnings season is at its peak, President Donald Trump has been keeping investors busy elsewhere. Investors keenly await clarification on the timing and scope of Trump’s business-friendly policies and how the administration will balance tax cuts and infrastructure outlays with protectionist trade policies. The President has also acted promptly on executive orders ranging from a temporary immigration ban to the withdrawal from landmark trade pacts.
Investors, in the meantime, also assign greater risk premiums to European countries where anti-establishment movements are gaining traction ahead of elections. Amid such apprehensions, it will be wise to invest in value stocks. Value investors look for times of uncertainty to pick stocks at a discount, which are fundamentally stable.
Travel Ban Triggers Uncertainty
Trump banned immigration from seven Muslim-majority countries, including legal residents and visa holders. This decision has drawn congressional criticism and widespread protests. These protectionist measures may also cloud the path for pro-business initiatives as several world and corporate leaders condemn the ban. German chancellor Angela Merkel said that it is “not justified to put people from a specific background or faith under general suspicion”, while French president Francois Hollande said that “withdrawal into oneself is a dead-end response”.
Airlines bore the brunt as well as several airports across the country saw violent protests, disrupting operations to a great extent. Such an executive order on immigration, widely known as the “Muslim Ban”, is being met with resistance by an increasing number of major tech firms.
Tim Cook, Apple Inc.’s (AAPL) CEO in an email sent to staff said that Trump’s order “is not a policy we support”. He added that “diversity makes our team stronger”. In fact, 97 tech giants including Alphabet Inc (GOOGL), Facebook Inc (FB) and Netflix, Inc. (NFLX) filed a joint legal brief in protest of Trump’s immigration ban.
Alphabet, promptly, created a $2 million crisis fund for four campaigning organizations such as American Civil Liberties Union, Immigrant Legal Resource Center, International Rescue Committee and UNHCR, while Sundar Pichai its CEO said that “it’s painful to see the personal cost of this executive order on our colleagues”.
Trade War Could Hit Economy
Investors, in the meanwhile, may ignore Trump’s trade rhetoric at their own peril. The administration’s pledge to protect U.S. industries and redefine currency relationships could lead to a trade war with dire consequences, eventually sparking a sell-off. In order to put “America First”, Trump may retreat from global trade sending exporter’s currency plummeting, curbing corporate revenues and destroying consumption.
Trump has withdrawn the U.S. from the Trans-Pacific Partnership and is mulling over the imposition of a border tax on imports. The administration had accused China, Mexico, Germany and Japan of keeping their currencies weak to gain trade advantages, which is irking even those who were bullish after the election.
Caution Spreads Amid Geopolitical Risks
While a highly polarized political environment and Trump’s confrontational approach are expected to fuel volatility in the market, investors are also preparing for political upheavals across Europe including French and German elections later this year.
French Socialist Member of Parliament and supporters have started to break ranks with their party after the primary election win of leftwing presidential nominee Benoît Hamon, offering support to independent candidate Emmanuel Macron. In Germany, Martin Schulz is to run as the Social Democrat candidate for chancellor after Sigmar Gabriel turned down the chance to oppose Angela Merkel in parliamentary election.
5 Top Value Stocks to Buy Now
In a sign of how large the President’s policies loom over the market, an analysis of FactSet data shows that one out of four companies were anxious about Trump’s policies during their most recent earnings conference calls. Add to this more political disorder across Europe and we all know why investing in value stocks is judicious.
Value investors look at uncertain times as opportunities to pick up financial sound stocks at a discount. Such companies are well-established to do business even in the worst of times and are protected against market vagaries.Successful investors like Warren Buffett also recommend choosing stocks that are momentarily underpriced compared to the underlying value of the company, especially in an investment climate marked by skeptical investor behavior.
Thanks to our new style score system, we have been able to identify five solid value stocks. Such stocks boost a Value Style Score of ‘A’ and a Zacks Rank #1 (Strong Buy), which offers the best opportunities in the value investing space.
NCI Building Systems Inc (NCS) designs, engineers, manufactures and markets metal products for the nonresidential construction industry in North America. The company’s expected earnings growth rate for the current year is 37.3%, higher than the industry’s projected return of 18.5%. NCI Building Systems has a price-to-earnings ratio (P/E) of 16.46, compared with 18.40 for the industry.
Jabil Circuit, Inc. (JBL) provides electronic manufacturing services and solutions. The company’s expected earnings growth rate for the current year is 8.3%, more than the industry’s projected return of 4.6%. Jabil Circuit has a price-to-earnings ratio (P/E) of 14.43, compared with 15.40 for the industry.
Insight Enterprises, Inc. (NSIT) provides information technology (IT) hardware, software, cloud, and service solutions. The company’s expected earnings growth rate for the current year is 15.4%, more than the industry’s projected return of 10.6%. Insight Enterprises has a price-to-earnings ratio (P/E) of 13.21, compared with 15 for the industry.
Spark Energy Inc (SPKE) operates as an independent retail energy services company in the U.S. The company’s expected earnings growth rate for the current year is 25.5%, more than the industry’s projected return of 4.9%. Spark Energy has a price-to-earnings ratio (P/E) of 9.47, compared with 14.3 for the industry.
Fidelity Southern Corporation (LION) provides financial products and services for business and retail customers primarily in the metropolitan Atlanta market, and Jacksonville, Orlando, and Sarasota-Bradenton, Florida markets. The company’s expected earnings growth rate for the current year is a steady 5.1%. Fidelity Southern has a price-to-earnings ratio (P/E) of 15.11, compared with 20.3 for the industry.
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