Fueled by low interest rates, a stronger U.S. dollar and an improving U.S. economy, the U.S. stock market is marching higher and has touched new highs on several occasions. While the bull market may have more room to run in 2015, we expect it will do so erratically.
A combination of higher-than-normal valuation levels and speculations surrounding when the Federal Reserve will tighten its monetary policy may result in increased price volatility. Add to this disappointing March jobs data, a sluggish consumer outlook and foreign market volatility, and this year may turn out to be a crazy rollercoaster ride.
The market has a tendency to overreact to good and bad news, resulting in stock price movements that do not truly correspond with the company's long-term fundamentals. In a market as capricious as this, your returns will depend on selecting the right companies from the right sectors, rather than relying on a broad-based approach.
Often, investors overlook some promising stocks which are actually undervalued, simply because they have been out of favor in the industry. We believe that this is just the right opportunity for value investors to enter the market and grab stocks which have been dismissed by a majority of investors, and are thus trading cheap.
Hunting a Bargain
Normally, stock investors go bargain hunting after a general market decline. But we feel this is the right time to rummage through the bargain bin and discover deals that offer a huge return potential.
We zeroed in on the following three value picks with the assistance of our new style score system. These stocks have bright prospects, and their attractive valuations serve as a perfect opportunity for investors to jump in and ride the anticipated growth.
Please note that the Zacks Style Score for value takes into account all valuation metrics to give us an actionable metric that helps identify stocks truly trading at a discount to intrinsic value. Back-tested results show that stocks with Style Scores of ‘A’ or ‘B’ when combined with Zacks Rank #1 (Strong Buy) or #2 (Buy) handily beat other stocks.
Flaunting a solid Zacks Rank and Value Style Score, coupled with a forward price-to-earnings (P/E) ratio of below 20, these stocks are good bets for now.
Ashford Hospitality Trust Inc. AHT
A Zacks Rank #2 and a Value Style Score of A makes this self-advised Maryland corporation and real estate investment trust a great value right now. The stock is currently trading at $9.54, which is just a 13.8% premium to its 52-week low of $8.38.
Not only is its forward P/E of 7.84x way below the industry average of 14.85x, but the firm has also been witnessing solid earnings estimate revision activity over the past month, suggesting that analysts are gaining more confidence on its prospects in both the short and long term.
These revisions have helped boost the consensus estimate by 1.6% to $1.25 for the full year, over the last 30 days.
Amira Nature Foods Ltd. ANFI
Headquartered in Dubai, UAE, Amira Nature Foods provides packaged Indian specialty rice along with other organic rice products. With a forward P/E as low as 5.04x, the stock is currently trading at $8.96, its 52-week low level being $7.41.
As Americans are becoming increasingly health conscious, the growing organic food industry displays much potential. The stock has actually seen estimates rise over the past couple of months for the current fiscal year by about 3.6%.
A Zacks Rank #1 and a Value Style Score of A further highlights the potential for out-performance in this stock.
China Petroleum & Chemical Corp. SNP
This oil and gas exploration and development company has a Zacks Rank #2 and a Value Style Score of A. As the oil sector is beginning to show signs of recovery, we feel that the company has significant potential to grow.
Currently trading at $87.30, just a 16% premium to its 52-week low, China Petroleum & Chemical has a P/E ratio of 15.93x, lower than the industry P/E of 21.61x. The stock has also been enjoying positive estimate revisions over the past month which has caused the Zacks Consensus Estimate to climb 4.11% to its current level of $5.31 a share for the current year.
The Bottom Line
With the major indexes hovering around all-time highs, it can be tough to find high quality bargains. However, looking beyond the well-known names and scouting industries that might not seem as attractive while employing the Zacks' style score system can help one find just the right deals.
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