The volatility in the U.S. market continues with the Dow witnessing two massive falls of 1,175 points on Monday and 1,032 points on Thursday. Although a bleeding Dow managed to recover 1.4% on Friday, the market has entered correction territory. It goes without saying that investors are still jittery with almost $2.5 trillion wiped out last week.
Inflationary fears are being fueled by the specter of likely faster rate hikes this year after January jobs data showed that U.S. workers experienced their largest year-over-year wage increase since 2009. That said, this might just be a passing phase, with strong U.S. economic fundamentals and yet another robust earnings season hinting at a brighter future.
While it’s too early to predict the extent of volatility over the next few days, we can say for sure that there is ample room for stocks to rebound, a reason valid enough for investors to opt for value stocks on the dip.
Is the Correction Over?
The Dow declined more than 1,000 points twice last week, finally slipping into correction territory. All the three key U.S. indexes registered their worst weekly decline in two years after reaching their all-time high levels on Jan 26, following an increase in inflation and higher bond yields. The Dow, the S&P 500 and the Nasdaq lost 5.2%, 5.2% and 5.1%, respectively.
Rising bond yields faded the appeal of stocks, especially with valuations hovering at historically high levels. A tighter labor market, strong wage growth and prospects of rise in inflation raised rate hike prospects to as early as the Fed’s upcoming March meeting, which in turn weighed on investor sentiment. A higher rate environment, optimism surrounding steady economic growth and higher inflation weighed on bond prices.
However, despite significant losses experienced over the week, strong fundamentals that powered the prolonged market rally remain firmly in place. The volatility is likely to exist over the next few days but analysts and market watchers believe that this downslide is much like a short pause, one which could extend the duration of an unprecedented stretch of gains.
Value Still a Concern, Rally Set to Continue
In spite of the bloodbath and correction, we haven’t yet entered a bear market. Moreover, despite the 10% fall over last week, the picture might not be actually that gloomy. If we look at the five-year share price movement of FAANG companies, last week’s 10% fall is miniscule.
While the share price of Facebook Inc (NASDAQ:FB) has increased 516.96% in the last five years, that of Amazon.com, Inc. (NASDAQ:AMZN) and Apple Inc. (NASDAQ:AAPL) has escalated 411.4% and 130.52%, respectively. Similarly, share price of Netflix, Inc. (NASDAQ:NFLX) and Alphabet Inc (NASDAQ:GOOGL) has shot up a respective 864.96% and 166.17%.
This state of affairs also indicates that it is only natural for overvaluations concerns to prevail. Markets have enjoyed an extended run of gains and recent reverses in a way have erased completely the ground covered in the past. Additionally, a strong economy and bullish earnings performances indicate that this phase will be short-lived. Considering all these factors, it only makes sense to add attractive stocks to your portfolio on the dip.
Our Choices
The strong fundamentals that backed an extended market rally have not been shaken by the selloff. So, it makes good sense to buy value stocks at a bargain that could prove to be valuable finds once the rally resumes. Our selection is also supported by a good Zacks Value Score and a Zacks Rank #1 (Strong Buy).
We narrowed down our choices with the help of our new style score system.
Our research shows that stocks with a Value Style Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best opportunities in the value-investing space.
Tesoro (NYSE:ANDV), now known as Andeavor, engages in the refining and marketing of petroleum products. The company’s operating segments consist of Refining, Logistics and Marketing. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 9.33, lower than the industry average of 12.76. It has a PEG ratio of 0.93, lower than the industry average of 1.30.
Centene Corp (NYSE:CNC) is a diversified, multi-national healthcare enterprise that provides a portfolio of services to government sponsored and commercial healthcare programs, focusing on under-insured and uninsured individuals. The P/E (F1) for the current financial year (F1) is 14.08, lower than the industry average of 15.97. Also, it has a PEG ratio of 0.96, lower than the industry average of 1.27.
HCA Holdings Inc (NYSE:HCA), now known as HCA Healthcare Inc, is a non-governmental hospital in the United States, providing healthcare and related services. The stock has a P/E (F1) of 11.23 for the current financial year (F1), lower than the industry average of 13.83. It has a PEG ratio of 0.98, lower than the industry average of 1.32.
Lam Research Corporation (NASDAQ:LRCX) provides market-leading equipment and services for semiconductor wafer processing. The stock has a P/E (F1) of 9.9 for the current financial year (F1), which is lower than the industry average of 13.09. It has a PEG ratio of 0.67, lower than the industry average of 1.15.
Veritiv Corp (NYSE:VRTV) engages in offering North American business-to-business distribution solutions. It provides packaging, print and print management, publishing, supply chain, facility and logistics solutions that span the entire lifecycle of core business operations. The stock has a P/E (F1) of 8.66 for the current financial year (F1), lower than the industry average of 13.44. It has a PEG ratio of 0.81, which is lower than the industry average of 1.99.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
