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Shrug Off Market Gyrations With These Top 5 Value Picks

Nalak Das

After an exponential rise in the first four months of the year, Wall Street has entered into a correction mode in May after trade-related negotiations between the United States and China stalled abruptly. However, markets returned to their winning streak on May 21 despite the fact that major stock indexes are yet to recover the losses that they suffered in this month.

Meanwhile, the strong 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, downside potential will be limited owing to solid U.S. economic fundamentals. 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.

Wall Street Tumbles as Trade War Resurfaces

On May 10, the U.S. government hiked existing tariff rates to 25% from 10% on $200 billion of Chinese exports. In 2018, the Trump administration imposed 25% tariff on $50 billion of Chinese goods. Moreover, President Trump threatened to levy 25% tariff on another $325 billion of Chinese goods.

China had imposed $110 billion tariffs on U.S. exports in 2018. Following the hike of U.S. tariff, the Chinese authority imposed 25% tariff on an additional $60 billion U.S. goods effective Jun 1, 2019.

If negotiations continue, there is no timeline specified on when the parties should reach an agreement. However, a consensus will certainly bode well for both economies. On the other hand, if no progress is made at all and a full-fledged trade war rages, the global economy too will see a slowdown along with the warring nations.

Trump Declares National Emergency in Telecom

On May 15, President Donald Trump issued an executive order declaring a national emergency, preventing U.S. corporates from using information and communications technology equipment from sources as this “poses an unacceptable risk to the national security of the United States.”

Following the order, the Department of Commerce added Chinese telecom behemoth Huawei Technologies and its affiliates to the Bureau of Industry and Security (BIS) Entity List. Another Chinese telecom giant ZTE may also face the same fate. The latest move by the U.S. government further jeopardized the trade relations between the two countries.

However, on May 21, the U.S. government said that it will provide a 90-day reprieve to Huawei before taking tough trade measures. During these 90 days, the U.S. government will issue temporary license to the U.S. suppliers of the Chinese telecom behemoth so that Huawei dose not face any immediate supply-chain management issue.

Several economists and market watchers are considering a decision on the part of the Trump administration to open a channel to find a meaningful solution to the year-old trade spat between the two largest trading countries of the world.

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 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 year to date.

Comcast Corp. CMCSA is a media and technology company worldwide. It operates through the Cable Communications, Cable Networks, Broadcast Television, Filmed Division, Theme Parks, and Sky segments.

The forward price-to-earnings ratio (P/E) for the current financial year is 14.6, lower than the industry average of 27.8. It has a PEG ratio of 1.17, lower than the industry average of 2.10. The company has expected earnings growth of 14.9% for the current year. The Zacks Consensus Estimate for the current year has improved by 3.2% over the last 30 days.

CommScope Holding Co. Inc. COMM provides premier infrastructure solutions for communications networks worldwide. The forward P/E ratio for the current financial year is 7.1, lower than the industry average of 52.6. It has a PEG ratio of 0.36, lower than the industry average of 9.64. The company has expected earnings growth of 12.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 1.2% over the last 30 days.

j2 Global Inc. JCOM provides cloud-based communications and storage messaging services. The forward P/E ratio for the current financial year is 12.3, lower than the industry average of 59.4. It has a PEG ratio of 1.53, lower than the industry average of 3.16. The company has expected earnings growth of 11% for the current year. The Zacks Consensus Estimate for the current year has improved by 4% over the last 30 days.

Molina Healthcare Inc. MOH is a multi-state healthcare organization that provides managed health care services to low-income families and individuals under the Medicaid and Medicare programs and through the state insurance marketplaces.

The forward P/E ratio for the current financial year is 11.9, lower than the industry average of 14.1. It has a PEG ratio of 0.95, lower than the industry average of 1.01. The company has expected earnings growth of 2.5% for the current year. The Zacks Consensus Estimate for the current year has improved by 9.7% over the last 30 days.

Lithia Motors Inc. LAD is one of largest automotive retailers featuring most domestic and import franchises. The forward P/E ratio for the current financial year is 10.3, lower than the industry average of 16.9. It has a PEG ratio of 1.45, lower than the industry average of 1.64. The company has expected earnings growth of 11.7% for the current year. The Zacks Consensus Estimate for the current year has improved by 8.6% over the last 30 days.

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