4 Low P/E Value ETFs & Stocks To Wait Out Uncertainty

True to its ill repute, this month has been witnessing heightened volatility. On September 9, both stocks and bonds went into a tailspin on a sooner-than-expected rate hike prospect. Bonds suffered due to rising rate fears and stocks slumped in fear of gradual ceases of cheap dollar inflows (read: Hedge Your Portfolio Against Sell-Off With These ETFs).

Investors should note that September is historically the worst month of the year for stocks. According to moneychimp.com, a consensus carried out from 1950 to 2015 has revealed that September ended up offering positive returns in 29 years and negative returns in 37 years, with an average return of negative 0.68%, which is worse than any month.

Agreed, dovish comments by Fed Governor Lael Brainard on the policy tightening issue on September 12, showered gains on equities and lowered chances a Fed rate hike in the near term. But the U.S. stock market is expected to remain rocky in the coming days given the uncertainty surrounding the FOMC meeting scheduled during September 20–21. After all, a group of Fed officials is still in favor of a rate hike in September.

Also, the upheaval in the oil patch will likely make equities vulnerable going forward. The International Energy Agency’s (IEA) latest forecast that a global oil supply glut will remain through 2017 and the awaited outcome of the OPEC meeting during September 26-28 will likely keep oil prices unsteady in the near term (read: Should You Buy Oil ETFs Ahead of the OPEC Meet?).

Volatility to Flex Muscle Ahead?

Investors should note that overvaluation concerns in the equity as well as bond market are rife at present. Goldman Sachs (NYSE:GS) expects the S&P 500 to close out the year at 2,100, which means a 2.73% decline is waiting ahead of the September 12 close (read: Profit from Wall Street Sell-Off with These Inverse ETFs).

Deutsche Bank (DE:DBKGn) is also apprehensive of the same downside risks down the line. The bank now sees an 8–10% fall impending for the S&P 500 and stated that lower volatility in the past six weeks in that key U.S. equity gauge was “the quiet before the storm.”

Deutsche Bank particularly stressed that “low bond yields [are] distorting valuations in various stock market sectors.” JP Morgan also cautioned about imminent volatility in the market.

In any case, U.S. stocks were recently held guilty of rich valuations. Jeffrey Gundlach, the chief executive of DoubleLine Capital also did not seem convinced about stock valuation as U.S. economic growth is still tepid and corporate earnings are far from steady. Billionaire investor George Soros recently “almost doubled down on a bearish bet against the U.S. stock market.”

Why Look for Value?

With all these overvaluation concerns doing rounds, looking for value stocks and ETFs seems an intriguing idea. This segment tends to remain relatively stable in an uncertain environment. Value funds offer exposure to a wide variety of stocks with value characteristics, such as low P/B, low P/S and low P/E ratios (read: 5 Undervalued ETFs for Dividend Lovers).

For investors, we present four ETFs that have P/E ratios more-or-less than that of SPDR S&P 500 ETF (AX:SPY) (which is 16.23 times).

ETF Picks

iShares MSCI USA Value Factor ETF (NS:VLUE) – P/E 12.5 times

iShares Morningstar Mid-Cap Value ETF JKI – P/E 13.1 times

iShares Russell 2000 Value ETF IWN – P/E 15.2 times

PowerShares S&P 500 High Dividend Low Volatility Portfolio ETF SPHD – P/E 16.7 times

Stock Picks

We picked stocks on the basis of criteria including a Value Style Score of ‘A’, a Zacks Rank #1 (Strong Buy), a Zacks Industry Rank within the top 25% and Forward P/E ratio of less than 16 times. Our chosen stocks are:

Sanderson Farms Inc. (NASDAQ:SAFM)

It is a poultry processing company.

P/E – 13.49 times

Zacks Industry Rank – Within top 5%

Nationstar Mortgage Holdings Inc. (NYSE:NSM)

The company is a mortgage lender.

P/E – 10.15 times

Zacks Industry Rank – Within top 8%

The Goodyear Tire & Rubber Company (NASDAQ:GT)

It is one of the largest tire companies in the world.

P/E – 7.79 times

Zacks Industry Rank – Within top 2%

PCM Inc. (NASDAQ:PCMI)

The company is a technology solutions provider.

P/E – 10.86 times

Zacks Industry Rank – Within top 8%

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