Stocks fell on Tuesday after January inflation data came in slightly hotter than projected, forcing Wall Street to recalibrate stock prices and tweak the timeline for Fed rate cuts.
Prices didn’t come in shockingly high last month and the market was due for a pullback at some point soon given the extended run to start 2024. The S&P 500 had climbed well above its 21-day and 50-day moving averages and hit rather heavily overbought RSI levels.
Investors should remember that stocks and indexes always return to key moving averages, even during the best bull markets.
Thankfully, the dips might be scooped up quickly in 2024 as investors attempt to avoid missing out as many did in 2023. Plus, the Fed is still set to start cutting rates and the earnings picture remains strong.
No matter what happens in the near term and throughout the year, many investors likely want to add value-focused stocks to their diversified portfolios. Thankfully, there are tons of fantastic value stocks to buy, if people know where to look.
Today we show investors how to screen for stocks that offer a great combination of enticing valuation levels and improving earnings outlooks to consider buying in February and throughout 2024.
Screen Basics
The screen we are digging into today comes loaded with the Research Wizard and aims to sort through highly-ranked Zacks stocks to find some of the top value names.
This value-focused screen searches only for stocks that boast Zacks Rank #1 (Strong Buys) or #2 (Buys). It also focuses on stocks with price-to-earnings (P/E) ratios under the median for its industry. The screen also looks for stocks with price-to-sales (P/S) ratios under the median for its industry to help lock in relative value compared to its peers, since basing it off the wider market is not always the most useful tool.
The screen then digs into quarterly earnings rates above the median for its industry. This particular Zacks screen also uses a special blend of upgrades and estimates revisions to select the best seven stocks in this list.
The screen basics are listed below…
· Only Zacks Rank #1 (Strong Buy) or #2 (Buy) Stocks
· P/E (using 12-month EPS) - Under the Median for its Industry
· P/S - Under the Median for its Industry
· Percentage Change Act. EPS Q(0)/Q(-1)
· Rating Change and Revisions Factors (to help narrow the list to the 7 best stocks in this list)
This strategy comes loaded with the Research Wizard and it is called bt_sow_value_method1. It can be found in the SoW (Screen of the Week) folder.
The screen is pretty simple, yet powerful. Here is one of the seven stocks that made it through this week's screen…
Sunoco LP (SUN)
Sunoco LP is a master limited partnership with a core focus on the distribution of motor fuel to roughly 10,000 customers. Sunoco’s main customers include independent dealers, commercial customers, convenience stores, and distributors. The U.S. fuel distributor is set to boost its business through a $7.3 billion deal to acquire NuStar Energy L.P. (NS). The all-equity transaction announced on January 22 is expected to close in the second quarter.
Zacks Investment Research
Image Source: Zacks Investment Research
NuStar Energy is an independent liquids terminal and pipeline operator, with roughly 9,500 miles of pipeline and 63 terminal and storage facilities that store and distribute crude oil, refined products, renewable fuels, ammonia, and specialty liquids. Sunoco’s deal is part of a wave of energy mergers and acquisitions as companies revamp and retool following the massive surge in oil and gas prices in 2022.
Sunoco shares have climbed 95% in the last three years to blow away the Oil and Energy sector’s 46%. SUN continued to surge recently as the sector stalled, with the stock up 30% in the last year and 38% in the past six months vs. its sector’s 4% decline. SUN stock found support at its 50-day moving average recently and it is back above its 21-day as well, while also trading closer to neutral RSI levels.
Zacks Investment Research
Image Source: Zacks Investment Research
Sunoco trades at 16.1X forward 12-month earnings, marking a 50% discount to its decade-long highs despite trading near its all-time highs. Sunoco lands a Zacks Rank #1 (Strong Buy) heading into its earnings report on February 14. The company could face selling pressure in the near-term. But investors should love its 5.5% dividend yield.
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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: www.zacks.com/performance_disclosure
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