Wall Street has lately been on a choppy ride, with the Dow Jones dropping for the sixth consecutive session on tariff tantrum and erasing of all the gains made this year. The most recent sell-off came after Trump threatened to impose tariffs of up to $400 billion on Chinese goods on top of the $50 billion goods announced on Jun 15. This is the latest escalation in a tit-for-tat tariff dispute between the two world’s largest economies that could spiral into a trade war.
However, economic fundamentals remain sound that is expected to resume rally in the stocks. The raft of upbeat data shows that the economy is piping hot given that American manufacturing is enjoying a 21-month winning streak, average hourly wages are rising, and unemployment has dropped to 3.8% — the lowest level since 2000.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose the most in five months by 0.6% in April, while consumer confidence rebounded near the 18-year high in May. Per the latest survey, consumer sentiment rose to the highest level in three months early in June. U.S. retail sales also rose the most in six months in May.
So clearly, all the latest data points signal acceleration in economic growth after the slowdown in the first quarter. Further, the massive $1.5-trillion tax cut will perk up the economy and save billions for corporations, boosting job growth and earnings.
In such a scenario, investors should consider value investing. The strategy includes stocks with strong fundamentals — earnings, dividends, book value and cash flow — that trade below their intrinsic value and are undervalued by the market.
Why Value Investing?
Value stocks often overreact to both positive and negative news, resulting in share price movement that does not reflect the company’s true long-term fundamentals. This creates buying opportunities in such stocks at depressed prices and shows the potential for capital appreciation when the stock finally reflects its true market price.
As a result, investors may want to consider a nice value play in the current scenario. While there are number of options available in the value space, focus on cheap stocks could be a less risky way to tap the same broad trends. Below we have selected five stocks having a Zacks Rank #1 (Strong Buy), a Value Score of A, double-digit earnings growth for this year and a Zacks Industry Rank within the top 40%, with the help of the Zacks Stock Screener.
CNOOC Limited (NYSE:CEO)
This company is engaged primarily in the exploration, development and production of crude oil and natural gas offshore China. The stock has an expected earnings growth rate of 83.33% for this year and belongs to a top-ranked Zacks industry (top 2%). It has a market cap of $73.4 billion.
Micron Technology (NASDAQ:MU)
This is one of the world’s leading providers of advanced semiconductor solutions. With a market cap of $67.8 billion, the company has an estimated earnings growth rate of 132.46% for the current fiscal year ending August 2018. It belongs to a top-ranked Zacks industry (top 1%).
This company provides performance chemicals in North America, the Asia Pacific, Europe, the Middle East, Africa, and Latin America. It has an expected earnings growth rate of 48.95% for this year. Chemours has a market cap of $8.7 billion and falls under a top-ranked Zacks industry (top 24%).
Hi-Crush Partners LP (NYSE:HCLP)
This company is engaged in the production of monocrystalline sand, a specialized mineral that is used as a proppant to enhance the recovery rates of hydrocarbons from oil and natural gas wells. With a market cap of $1 billion, it has an expected earnings growth rate of 189.11% for this year. The stock falls under a top-ranked Zacks industry (top 27%).
This company supplies drivetrain, mobility, braking and aftermarket solutions for commercial vehicle and industrial markets. The stock has an expected earnings growth rate of 49.47% for this year and belongs to a top-ranked Zacks industry (top 32%). It has a market cap of $1.9 billion.
Value stocks seek to outperform amid market uncertainty. As such, investors shouldn’t forget the value space and should take a closer look at a few of the attractive value products in this segment for excellent exposure and some outperformance in the near term.
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