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5 Retail Value Stocks to Buy as Wall Street Walks a Tightrope

Zacks

Instead of losing sleep over the uncertainties plaguing the market at the moment and making desperate attempts at finding a direction, investors should follow the footsteps of Benjamin Graham, the father of value investing.

"An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative."- Benjamin Graham.

Investor sentiment is often swayed by breaking news and headlines, keeping the stock market in its thrall. At present, the devastating hurricanes Irma and Harvey along with geopolitical tension between the United States and North Korea are keeping Wall Street at edge. Investor worries were also heightened following the news that fund managers view the U.S. stock market as the most overvalued in the world. Further, analysts believe that due to the severe impact of hurricane Irma and Harvey Federal Reserve may restrain itself from raising interest rate for the rest of this year.

Despite the aforementioned factors, the recent domestic data provided somewhat respite to investors. Per the commerce department, the U.S. economy expanded at a faster rate than initially expected. Further, increase in retail sales, Consumer Confidence and consumer spending supported by a favorable jobs scenario, indicates that the economy might do well in the second half of 2017.


Where to Put Your Money?

Now the most important question that arises is where should investors put their money in present situation? We believe investors can do well by seeking refuge in less risky stocks. We suppose investing in value stocks could actually be a safer bet at this moment, given their inclination for steady growth and momentum in price.

Value investing offers a break for entering the market and capturing stocks that have otherwise been overlooked by a majority of investors. A value stock may have a high dividend yield, low price-to-book ratio, low price-to-earnings ratio or a low price-to-sales ratio.

Our Choices

It might be difficult for one to look at each parameter and compare with the peer group for an analysis on whether the stock is attractive from the value perspective. To make the task easy, Zacks has designed the new Style Style Score System.

The attractiveness of a stock as an investment option is confirmed by its Value Style Score of A or B. The Value Style Score condenses all valuation metrics into one actionable score that helps investors steer clear of ‘value traps’ and identify stocks that are truly trading at a discount. Our research shows that stocks with Style Scores of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best upside potential.

We have narrowed down our search to the following stocks based on a solid Zacks Rank #1 or 2 and Value Style Score of A.

Rush Enterprises, Inc. RUSHA has emerged as a strong contender with a long-term earnings growth rate of 15% and a Value Score of A. In a year, the stock has surged roughly 81.6% comfortably outperforming the industry’s growth of 7.7%. This integrated retailer of commercial vehicles and related services delivered an average positive earnings surprise of 27% in the trailing four quarters and flaunts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

You may consider Aaron's, Inc. AAN, an omni-channel provider of lease-purchase solutions. The stock sports a Zacks Rank #1 and has a Value Score of B. The company posted an average positive earnings surprise of 14% in the trailing four quarters. In a year, the stock has displayed a fabulous bull run on the index and has risen 67.1%, while the industry advanced 41.7%.

Herbalife Ltd. HLF, which develops and sells weight management, sports and fitness, as well as nutritional and personal care products, carries a Zacks Rank #2 and also has a Value Score of B. The company has reported positive earnings surprise in the trailing four quarters, with an average beat of 25.1%. Herbalife has a long-term earnings growth rate of 8.3%. In a year, the stock has exhibited a bullish run and surged roughly 15.3%, while the industry declined 10.4%.

Investors can bank on The Gap, Inc. GPS, a premier international specialty retailer, which carries a Zacks Rank #2 and also has long-term earnings growth rate of 8%. The company registered an average positive earnings surprise of 9.3% in the trailing four quarters and has a Value Score of A. The company’s shares have gained 12.5% in a year, outperforming the industry which has tanked 32.3%.

We also suggest investing in The Children's Place, Inc. PLCE with a long-term earnings growth rate of 9% and a Value Score of B. In a year, this Zacks Rank #1 stock has increased 39%, while the industry witnessed a decline of 32.3%. This specialty retailer of children's apparel delivered an average positive earnings surprise of 16.3% in the preceding four quarters.

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