Value ETFs & Stocks Offering Real Value: 5 Top Picks
Wall Street has been rallying hard in recent weeks and is due for a further rally led by cheap value stocks, if go by analysts’ comments. In fact, value stocks have gained more than momentum stocks in recent months. The favorable operating backdrop and damn cheap valuation are leading value stocks higher.
Let’s delve a little deeper:
Value Stocks Are Highly Lucrative
Per Bank of America, “Value has never been this cheap vs. Momentum.” The only time in history that value stocks have turned this cheap was in 2003 and 2008, when the group outperformed momentum stocks by 22 and 69 percentage points, respectively, over the subsequent 12 months, the bank added, as quoted on CNBC.
“Since the beginning of September, U.S. value stocks have risen about 10%, while U.S. momentum stocks have fallen more than 10%, according to Fraser-Jenkins’ data. In Europe, per Fraser-Jenkins, value stocks are up about 12%, while momentum shares have dropped about 7%,” as quoted on barrons.com (read: Value ETFs Trumping Momentum ETFs: Here's Why).
Fundamentals Strong But Uncertainty Lingers
In the three-month period ended Nov 8, 2019, the S&P 500 gained 7.3%, the Dow Jones added 6.9% and the Nasdaq advanced 7.8% on hopes of a trade deal. Investors are perhaps partying on years of cheap money inflows on benign central bank polices. After such astounding gains, thoughts of a correction in the market or overvaluation concerns are quite justified.
U.S. head of equity and derivative strategy at BNP Paribas believes that “the market’s become much more optimistic about a trade deal.” Moreover, after a recent rally, Morgan Stanley’s Garner believes that the U.S.-China partial trade deal is now priced in.
The ongoing Q3 reporting cycle shows that earnings growth is below what we had seen for this group of companies in other recent periods and revenue growth is in line. The U.S. economic data points have been mixed of late. The upcoming year will remain uncertain thanks to the pending outcome of Brexit, U.S. presidential election and further developments on U.S.-China trade relation.
But then easy money policies and a better-than-expected earnings season call for a stock rally. So, Wall Street analysts are of the view that the rally will mostly be supported by cheaper stocks, i.e. value stocks. There could be rotation into value from momentum ones.
Value ETFs & Stocks in Focus
Against this backdrop, below we highlight a few value ETFs & stocks that could be good bets for the near term.
ETFs in Focus
These ETFs have a low P/E ratio in the value ETF space.
ValueShares International Quantitative Value ETF IVAL – P/E 9.48x
The underlying index uses a 5-step, quantitative, rules-based methodology to identify a portfolio of approximately 40-50 undervalued non-U.S. equity securities or their depositary receipts with the potential for capital appreciation.
Invesco S&P 500 Enhanced Value ETF SPVU – P/E 9.70x
The fund tracks the performance of stocks in the S&P 500 Index that have the highest value score.
iShares Edge MSCI Intl Value Factor ETF IVLU – P/E 10.01x
The fund comprises international developed large- and mid-capitalization stocks with value characteristics and relatively lower valuations.
Columbia Sustainable International Equity Income ETF ESGN – P/E 10.15x
The fund applies a systematic, rules-based multi-factor model and provides exposure to companies that offer competitive and sustainable levels of income, as well as competitive total return.
First Trust Nasdaq Bank ETF FTXO – P/E 10.5x
The fund is designed to provide exposure to U.S. companies within the banking industry (read: 3 Reasons to Bet on Bank ETFs Now).
Stocks in Focus
The below-mentioned stocks have a Zacks Rank #1, Value Score of A and Forward P/E less than 20x.
Jounce Therapeutics Inc. JNCE – P/E 2.36x
It is a clinical-stage immunotherapy company engaged in developing therapies which enable the immune system to attack tumors.
Innoviva Inc. INVA – P/E 6.16x
Innoviva, Inc. is focused on the development, commercialization and financial management of bio-pharmaceuticals.
PennyMac Financial Services Inc. PFSI – P/E 6.94x
PennyMac Financial Services Inc. provides financial services primarily in the United States. The company conducts its business in two segments: mortgage banking and investment management.
PulteGroup Inc. PHM – P/E 10.8x
Based in Atlanta, GA, PulteGroup Inc. conducts operations through two primary business segments — Homebuilding (which accounted for 98% of total revenues in 2018) and Financial Services (2%) — primarily in the United States.
Insight Enterprises Inc. NSIT – P/E 10.8x
The company is a global direct marketer of brand name computers, hardware and software.
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PulteGroup, Inc. (PHM): Free Stock Analysis Report
PennyMac Financial Services, Inc. (PFSI): Free Stock Analysis Report
First Trust NASDAQ Bank ETF (FTXO): ETF Research Reports
Alpha Architect International Quantitative Value ETF (IVAL): ETF Research Reports
Innoviva, Inc. (INVA): Free Stock Analysis Report
Insight Enterprises, Inc. (NSIT): Free Stock Analysis Report
Jounce Therapeutics, Inc. (JNCE): Free Stock Analysis Report
Invesco S&P 500 Enhanced Value ETF (SPVU): ETF Research Reports
iShares Edge MSCI Intl Value Factor ETF (IVLU): ETF Research Reports
Columbia Sustainable International Equity Income ETF (ESGN): ETF Research Reports
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