The U.S. stock market is currently in the doldrums with macro headwinds in China, plunging crude oil prices and speculations surrounding the Fed's rate hike taking a heavy toll. Consequently, investors are keeping at bay as 2015 has not been fair for the stock market so far, as reflected by the performance of three major indices. Dow Jones Industrial Average, S&P 500 and Nasdaq are down a respective 8.6%, 6.7% and 2.5%, year to date.
The remainder of 2015 is not expected to be much different from what has been witnessed in the first three quarters of the year. The 2016 presidential elections and the plethora of promises made by prospective candidates pertaining to various economic issues have further aggravated volatility in the market.
The sudden downturn in China's economic condition has been a nail in the coffin for the U.S. stock market, which is significantly exposed to movements in China's growth potential. Moreover, the International Monetary Fund (IMF) estimates that China's economy will expand a meager 6.8% this year, which would be the weakest since 1990.
Is Value Investing the Right Strategy Now?
"All intelligent investing is value investing -- acquiring more than you are paying for. You must value the business in order to value the stock." - Charlie Munger
We firmly agree with this well-known quote by the investment partner of Warren Buffett. Volatility makes investing in growth and momentum stocks much risky, as the share price movement of stocks often lacks justification and defies common sense. Their rise is as meteoric as their fall from grace. Most importantly, the fundamentals of these stocks do not always support their lofty valuations.
On the other hand, value investing is probably a safer bet at this time of chaos. Value stocks generally possess impressive long-term prospects, helping investors sail through tumultuous phases in the stock market.
5 Compelling Choices
With the help of our new style score system , we have zeroed in on five large-cap stocks (market cap over $10 billion) that look promising based on their encouraging Zacks Rank and favorable Value Style Score.
Our 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. Back-tested results show 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.
Tesoro CorporationTSO , a petroleum refining and marketing company in the U.S, sports a Zacks Rank #1 and a Value Style Score of 'A.'
The company has an impressive earnings history, as it has steered past the Zacks Consensus Estimate by 9.1% on an average over the trailing four quarters. Estimate revisions have also been impressive with current year estimates escalating 42% to $12.39 per share over the last 60 days.
U.S. retailer The Kroger Co.KR carries a Zacks Rank #2 and a Value Style Score of 'A.'
The company has surpassed the Zacks Consensus Estimate on an average of 9.6% in the last four quarters. Current year estimates have inched up 1% to $1.97 per share over the last 60 days.
Sun Life Financial Inc.SLF , a financial services organization, carries a Zacks Rank #2 and a Value Style Score of 'B.'
The company managed to beat the Zacks Consensus Estimate in the last four quarters, the average being 9.7%. Recent estimate revisions also impress with current year estimates climbing 5.8% from $2.58 per share to $2.73, over the last 60 days.
Data storage product provider Seagate Technology Public Limited CompanySTX has a Zacks Rank #2 and a Value Style Score of 'A.'
The company has outshined the Zacks Consensus Estimate by 6.2% on an average, over the last four quarters. Recent estimate revision activities have also been encouraging as current year estimates have increased 6.2% from $4.20 per share to $4.46, over the last 60 days.
United Continental Holdings, Inc.UAL , a provider of air transportation services, carries a Zacks Rank #2 and a Value Style Score of 'A.'
The company has an impressive earnings streak as it has surpassed the Zacks Consensus Estimate by 3.9% on an average, over the last four quarters. The recent estimate revision trend is also impressive. Over the last 60 days, current year estimates have scaled from $10.82 per share to $11.23, reflecting a rise of 3.8%.