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Shrug Off Market Gyrations With These Top 5 Value Picks

After an exponential rise in the first half of November, Wall Street has entered into a correction mode this week following news that trade-related negotiations between the United States and China are in danger of hitting an impasse. The much-hyped first phase of the U.S.-China trade deal is reportedly to be delayed to next year instead of it being signed in mid-November.

Following these developments, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — declined 0.4%, 0.4% and 0.5%, respectively, on Nov 20. However, the stable economic fundamentals of the United States have raised the possibility that recent stock market volatility may be a transitory phase and markets will continue their long-term uptrends once trade issues are solved.

Markets are likely to remain range bound in the near term. A strong rally is unlikely for as long as this trade conflict continues. However, the downside potential will be limited owing to U.S. economic strength. Meanwhile, volatile trading may become a regular phenomenon in Wall Street. At this stage, it makes good sense to buy those stocks on the dip that could prove to be valuable once the rally resumes.

Trade Talk is Reportedly in Jeopardy

On Nov 20, Reuters reported citing people close to the White House that completion of a “phase one” U.S.-China trade deal could delayed next year. The Wall Street Journal also reported that the Trump administration’s desire to sign a partial trade deal with China may not be fruitful this year citing former administration officials and others sources in White House.

On Oct 11, President Trump declared that the two countries have reached an “agreement in principle” to sign a partial trade deal by mid-November. Meanwhile, on Nov 13, The Wall Street Journal reported that the deadlock in the trade-related negotiation continues regarding the withdrawal of U.S. tariffs on Chinese goods and China’s earlier commitment about purchasing $50 billion agricultural products from the United States.

The Chinese administration is also resisting requests from the White House to curb forceful transfer of intellectual properties as well as enforcement mechanisms. Meanwhile, on Nov 19, Trump has threatened to hike the existing tariff rate to 30% from 25% on $250 billion Chinese goods and impose tariff of $160 billion on fresh Chinese goods if the trade deal is not signed by mid-December.

Political Conflict in Hong Kong

On Nov 19, in a unanimous vote, the U.S. Senate passed the legislation aimed at protecting human rights in Hong Kong. “Hong Kong Human Rights and Democracy Act” was passed in Senate following a crackdown by the Chinese government on a pro-democracy protest movement in Hong Kong.

On Nov 20, China’s foreign ministry criticized the United States for unanimously passing a bill supporting Hong Kong protesters. China alleges that this bill is interference by the United States in China’s democratic affairs. Several economists are concerned that geopolitical issues in Hong Kong may further heighten the ongoing trade conflict.

Our Top Picks

At this stage, investors should be prepared to minimize fluctuations in their portfolio and consequently rebalance it with suitable financial assets to maintain stability. Thus, it would be prudent to pick up value stocks with a favorable Zacks Rank.

We have narrowed down our search to five stocks. Each of them carries a Zacks Rank #1 (Strong Buy) and a Value Score of A or B. You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows price performance of our five picks in the past three months.

 

DaVita Inc. DVA is a leading provider of dialysis services in the U.S. to patients suffering from chronic kidney failure, also known as end stage renal disease. It operates kidney dialysis centers and provides related medical services primarily in dialysis centers and in contracted hospitals across the United States.

The forward price-to-earnings ratio (P/E) for the current financial year is 13.7, lower than the industry average of 30.3. It has a PEG ratio of 0.62, lower than the industry average of 2.30. The company has an expected earnings growth of 48.7% for the current year. The Zacks Consensus Estimate for the current year has improved by 10.6% over the last 30 days. The stock price has jumped 29.6% in the past three months.

Quanta Services Inc. PWR is a leading national provider of specialty contracting services, and one of the largest contractors serving the transmission and distribution sector of the North American electric utility industry.

The forward P/E ratio for the current financial year is 13.1, lower than the industry average of 16.2. It has a PEG ratio of 0.90, lower than the industry average of 1.55. The company has an expected earnings growth of 15% for the current year. The Zacks Consensus Estimate for the current year has improved by 1.3% over the last 30 days. The stock price has jumped 26.2% in the past three months.

CRA International Inc. CRAI is one of the leading global consulting firms. It functions through a global network of coordinated offices across North America and Europe. The company advises clients on economic and financial matters pertaining to litigation and regulatory proceedings, and guides corporations through business strategy and performance-related issues.

The forward P/E ratio for the current financial year is 16.6, lower than the industry average of 18.3. It has a PEG ratio of 1.04, lower than the industry average of 1.35. The company has an expected earnings growth of 10.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 13.1% over the last 30 days. The stock price has soared 21.4% in the past three months.

NRG Energy Inc. NRG is engaged in the production, sale and delivery of energy and energy products and services to residential, industrial as well as commercial consumers in major competitive power markets in the United States.

The forward P/E ratio for the current financial year is 8.2, lower than the industry average of 20.1. It has a PEG ratio of 0.25, lower than the industry average of 3.80. The company has an expected earnings growth of 101.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 23.7% over the last 30 days. The stock price has surged 10.6% in the past three months.

First American Financial Corp. FAF serves homebuyers and sellers, real estate professionals, loan originators and servicers, commercial property professionals, homebuilders and others involved in residential and commercial property transactions with products and services specific to their needs.

The forward P/E ratio for the current financial year is 11.8, lower than the industry average of 15.6. It has a PEG ratio of 1.07, lower than the industry average of 1.84. The company has an expected earnings growth of 28.4% for the current year. The Zacks Consensus Estimate for the current year has improved by 6.1% over the last 30 days. The stock price has climbed 9.2% in the past three months.

Just Released: Zacks’ 7 Best Stocks for Today

Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.5% per year.

These 7 were selected because of their superior potential for immediate breakout.

See these time-sensitive tickers now >>


Click to get this free report

NRG Energy, Inc. (NRG): Free Stock Analysis Report

Quanta Services, Inc. (PWR): Free Stock Analysis Report

First American Financial Corporation (FAF): Free Stock Analysis Report

DaVita Inc. (DVA): Free Stock Analysis Report

Charles River Associates (CRAI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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