Welcome to Episode #361 of the Value Investor Podcast.
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.
With stocks still in the midst of a massive rally in 2024, it’s time to take a look at where the value stocks are.
During rallies, it can sometimes feel like there aren’t really any true value stocks anymore. Recently, Warren Buffett wrote in Berkshire Hathaway’s shareholder letter that he can’t find any companies to invest in, globally.
But mom and pop value investors aren’t limited to only the mega caps as a big investor like Berkshire might be. Perhaps there is more value in the small and mid-caps?
Screening for Strong Buy Value Stocks
It’s easy to screen for cheap stocks. A basic value screen looks for a forward price-to-earnings ratio under 20 and a price-to-sales ratio of 1.0 or less.
A price-to-sales ratio under 1.0 usually indicates value as investors are buying the sales at a discount. A price-to-sales ratio of 0.7, for example, means you are getting $1.00 of sales for just $0.70.
But that will only find you the cheap stocks. It won’t find you the companies with strong earnings outlooks.
How the Zacks Rank Gives You an Edge
That’s where the Zacks Rank comes in. It’s a vital component to finding top value stocks.
Fourth quarter earnings season is winding down but that means there has been a lot of changes to the earnings estimates. That means there are a lot of changes to the Zacks Rank.
Value investors should screen for the top Zacks Rank, the #1 (Strong Buys), in order to find companies that have rising earnings estimates.
Remember, when analysts are raising earnings estimates, it means something good is usually going on. The company might have beat earnings and raised the next quarterly, or full year, guidance. Or maybe growth is stronger and the analysts were being too cautious.
Either way, it’s a powerful tool to separate the simply “cheap” stocks from those that are cheap AND have strong earnings fundamentals.
Top Strong Buy Value Stocks in 2024
1. American Eagle Outfitters, Inc. (AEO)
American Eagle is a specialty apparel and accessories retailer which owns American Eagle and Aerie brands. It serves customers in 80 countries.
American Eagle recently reported fiscal fourth quarter 2024 earnings and beat on the Zacks Consensus by $0.11. Earnings were $0.61 compared to the Zacks Consensus of $0.50.
American Eagle was a Zacks (Strong Buy) stock going into its Mar 7, 2024 earnings report and it remains one afterwards. Shares have rallied 68% in the last year, but American Eagle remains cheap with a forward P/E of 14.8.
Should value investors have American Eagle on their short list?
2. American Woodmark Corp. (AMWD)
American Woodmark is a small cap company which builds cabinets. It’s tag line is “a family of cabinet brands.” It has a market cap of just $1.5 billion.
American Woodmark beat big on its last earnings report and analysts expect fiscal 2024 earnings to be up 14.4% year-over-year. It remains a Zacks Rank #1 (Strong Buy).
Shares have rallied along with the housing stocks in the last year. It’s up 62% during that time. American Woodmark is still cheap, with a forward P/E of just 11.
Is there still a buying opportunity in American Woodmark?
3. Sunoco LP (SUN)
Sunoco is a master limited partnership and a wholesale fuel distributor to convenience stores, independent dealers, and distributors in 40 states and 10,000 locations. It’s a mid-cap with a market cap of $5.3 billion.
Sunoco shares are up 40% over the last year, but the stock remains cheap with a forward P/E of 14.3. It also pays a juicy dividend, yielding 5.4%.
Should value investors consider an MLP like Sunoco in 2024?
4. Molson Coors Beverage Co. (TAP)
Molson Coors is a large cap beverage company with a market cap of $13.6 billion. Molson Coors was a Zacks #1 (Strong Buy) when Tracey did this podcast, but has since fallen to a #2 (Buy) stock. The earnings estimates still look strong with 8 estimates revised higher for 2024 in the last 30 days, and none have been cut.
Shares of Molson Coors have risen 21% in the last year. It’s cheap with a forward P/E of just 11.
Should Molson Coors be on a value investors’ short list?
5. Restaurant Brands International (QSR)
Tracey ran into a snafu with her fifth pick from the screen as it was Carrols Restaurant Group, which she discovered is about to be acquired by Restaurant Brands International.
Restaurant Brands International owns Tim Horton Canada and Burger King US. It is acquiring Carrols Restaurant Group in 2024, the largest Burger King franchisee with 1,000 restaurants in 23 states, which also owns 60 Popeye restaurants in 6 states.
Restaurant Brands shares are up 26% in the last year and are trading near 1-year highs.
However, while Carrols was cheap with a forward P/E of 14.8, Restaurant Brands International is not. It trades with a forward P/E of 23.3.
It’s also currently a Zacks Rank #3 (Hold) stock. 3 earnings estimates have been revised higher, and 3 have been cut, in the last 30 days. The analysts are not in agreement on Restaurant Brands.
Value investors should be sure they’re doing their research on any stock. The Zacks Rank doesn’t tell you the entire story.
What Else Do You Need to Know About Strong Buy Value Stocks?
Tune into this week’s podcast to find out.
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