5 Value Stocks For Market-Beating Returns

Wall Street has lately been on a choppy ride, with the Dow Jones dropping for the sixth consecutive session on tariff tantrum and erasing of all the gains made this year. The most recent sell-off came after Trump threatened to impose tariffs of up to $400 billion on Chinese goods on top of the $50 billion goods announced on Jun 15. This is the latest escalation in a tit-for-tat tariff dispute between the two world’s largest economies that could spiral into a trade war.

However, economic fundamentals remain sound that is expected to resume rally in the stocks. The raft of upbeat data shows that the economy is piping hot given that American manufacturing is enjoying a 21-month winning streak, average hourly wages are rising, and unemployment has dropped to 3.8% — the lowest level since 2000.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose the most in five months by 0.6% in April, while consumer confidence rebounded near the 18-year high in May. Per the latest survey, consumer sentiment rose to the highest level in three months early in June. U.S. retail sales also rose the most in six months in May. So clearly, all the latest data points signal acceleration in economic growth after the slowdown in the first quarter. Further, the massive $1.5-trillion tax cut will perk up the economy and save billions for corporations, boosting job growth and earnings.

In such a scenario, investors should consider value investing. The strategy includes stocks with strong fundamentals — earnings, dividends, book value and cash flow — that trade below their intrinsic value and are undervalued by the market.

Why Value Investing?

Value stocks often overreact to both positive and negative news, resulting in share price movement that does not reflect the company’s true long-term fundamentals. This creates buying opportunities in such stocks at depressed prices and shows the potential for capital appreciation when the stock finally reflects its true market price.

As a result, investors may want to consider a nice value play in the current scenario. While there are number of options available in the value space, focus on cheap stocks could be a less risky way to tap the same broad trends. Below we have selected five stocks having a Zacks Rank #1 (Strong Buy), a Value Score of A, double-digit earnings growth for this year and a Zacks Industry Rank within the top 40%, with the help of the Zacks Investment Research

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Written By: Zacks Investment Research