How To Invest For The Value Stock Comeback

• (0:30) - Growth Outperforms Value
• (2:35) - When Will The Value Come Back?
• (5:15) - Stock Screener: P/E Under 15
• (6:30) - Homebuilder Stock Picks
• (8:10) - Semiconductor Stock Picks
• (9:10) - Airline Stock Picks
• (10:00) - Health Insurance Stocks
• (11:00) - Chemical Sector
• (12:10) - Banking and Railroad Market
• (15:00) - Episode Roundup: Podcast@Zacks.com

Welcome to Episode #49 of the Value Investor Podcast

Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio service, shares some of her top value investing tips and stock picks.

It has been tough to be a value investor in 2017. Growth stocks, led by FANG, are again dominating the stock market as they did in 2015 and for most of 2016.

The Vanguard Large Cap Growth ETF (VUG) is up 14.3% year-to-date compared to the Vanguard Value ETF (VTV) which has risen just 4.5%. That’s a nearly 10% disparity between the two investing styles.

Value has been lagging for longer than just in 2017 though. Looking back over the last 5 years, large cap growth is up about 100% compared to value at just 75%.

Cracks in the Growth Facade

But outperformance doesn’t last forever.

In June 2017, the growth stocks started to show some cracks as investors rotated out of FANG in favor of value industries. Large cap value actually out performed growth for the first time in months.

While one month isn’t enough to declare the growth rally dead, it can at least give value investors some hope that their time may be coming.

Tracey screened for a forward P/E under 15 and a Zacks Rank of #1 (Strong Buy) or #2 (Buy) so that she’d get rising earnings estimates. Her screen returned 217 stocks, many in similar industries.

If value is about to make a comeback, what industries and stocks should investors be considering for their portfolios?

Best Industries for Value Stocks Right Now

1. Homebuilders: They are still cheap even though they’ve made big moves in 2017. If you’re only buying one consider Pulte (PHM) as its one of the largest and most geographically diverse. It has a forward P/E of just 11.

2. Semiconductors: They continue to be cheap even though they’ve been one of the hottest growth industries this year. Micron (MU) just reported solid earnings and is trading with a forward P/E of just 7.8.

3. Airlines: They had a bumpy ride earlier this year but fuel is still cheap and so are the stocks. Delta (DAL) trades with a forward P/E of 10.

4. Chemicals: They are the building blocks of the economy. Many of them are value stocks right now such as Eastman (EMN), which trades with a forward P/E of just 11.3.

5. Banks: Many foreign banks are considered values right now. However, the large American banks, like JPMorgan (NYSE:JPM), don’t have good enough Zacks Ranks, even though Tracey considers them to be cheap. They’ll be reporting next week so their earnings estimates could all change with the next earnings report. Should you keep them on your value short list?

This earnings season will be key for many of the traditionally “cheap” industries such as construction, equipment makers, chemicals and rails.

But what about the retailers and energy companies?

Does Tracey think any of them could make the list as stocks for the comeback? Or should investors stay away?

Find out the answers to this and more on this week’s podcast.

Want more value investing insights from Tracey?

Value investors are a special breed of investor. They don’t follow the herd.

If that is your style of investing, be sure to check out Tracey’s weekly Value Investor service to receive more in-depth analysis on value companies and see which stocks she thinks are the best bargains now.

The Value Investor portfolio holds between 20 and 25 value stocks for the long haul.

Click here to learn more>>>