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Stay Safe in an Unstable Market: 4 Top-Ranked Value Picks

Zacks

Wall Street commenced trading in September on a negative note after witnessing a robust August, which was the best in the last four years. Trade-related conflict between the United States and two of its largest trading partners – China and Canada – resurfaced. Moreover, fear of contagion from some emerging markets problems has also escalated market volatility.

The recent stock market volatility may be transitory in nature, given the strong economic fundamentals of the United States. Further, markets are expected to continue their long-term uptrend. However, investors should be prepared to minimize fluctuations in their portfolio and consequently rebalance it with suitable financial assets to maintain stability. At this stage, it would be a prudent decision to pick up value stocks with favorable Zacks Rank to cushion the portfolio.

Trade War Concerns Loom Large

On Aug 30, Bloomberg reported that President Trump is moving ahead with fresh tariffs worth $200 billion to be imposed on a vast array of Chinese goods ranging from selfie sticks to semiconductors. The time line for submitting comments from companies and members of the public ended on Sep. 6. Trump is considering levying the next round of tariffs by the end of this week. The two sides have already imposed $50 billion tariffs on each other.

United States and Canada are yet to reach a trade agreement to replace the old NAFTA. Trump has already threatened to eliminate Canada from the new NAFTA pact although he still stands by his previously stated time frame of late November to form a new deal with Canada in order to replace NAFTA.

On Aug 30, President Trump said Bloomberg that United States may pull out World Tarde Organization (WTO), globally the largest multilateral trade treaty, if the trade body does not give due importance to the U.S. trade concerns. If the United States leaves WTO, it will be a severe blow to global trade and economic prosperity.

Fear of Emerging Market Contagion

The ongoing economic crisis in some emerging markets especially severe currency depreciation in Argentina and Turkey may spill-over to their peers. Many emerging markets such as Brazil, India, Indonesia, Turkey and South Africa are characterized as high current account deficit. Weak commodity prices and likelihood of a slowdown in the Chinese economy are the other reasons of emerging markets volatility.

Strong U.S. Economic Fundamentals

The revised estimate has shown that the U.S. GDP grew at 4.2% in the second quarter of 2018, marking its highest gain since the third quarter of 2014 and the third-best growth rate since the Great Recession of 2008-2009.

On Aug 28, the Conference Board reported that its U.S. consumer confidence index for the month of August jumped to 133.4, marking its highest reading since October 2000. On Sep 4, the ISM reported that the U.S. manufacturing index for the month of August was 61.3%, a 14-year high.

Our Top Picks

The U.S. markets remain volatile so far in 2018. Trade-related concerns, geopolitical conflicts and emerging market problems will certainly lead to more fluctuations at least in the short term. This in turn will force investors to put their money in safe assets.

At this juncture, it will be a prudent decision to buy value on the dip stocks that could prove to be valuable once the rally resumes. We have selected four stocks with a Value Score of A and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. Our research shows that stocks with a Value Style Score of A or B when combined with a Zacks Rank #1 or 2 (Buy) offer the best opportunities in the Value-investing space.

The chart below shows price performance of our four picks in the last six months.


Ally Financial Inc. ALLY is an automotive financial services company. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 8.8, lower than the industry average of 11.4. It has a PEG ratio of 0.7, lower than the industry average of 0.8.

PulteGroup, Inc. PHM is one of the largest and most-successful homebuilding companies. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 8.1, lower than the industry average of 9.0. It has a PEG ratio of 0.4, lower than the industry average of 0.6.

RenaissanceRe Holdings Ltd. RNR is a global provider of reinsurance and insurance products. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 9.8, lower than the industry average of 14.3. It has a PEG ratio of 1.0, lower than the industry average of 1.3.

Huntsman Corp. HUN is a leading global manufacturers of differentiated and commodity chemical products. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 8.6 lower than the industry average of 15.2. It has a PEG ratio of 1.0, lower than the industry average of 1.4.

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