Hunting for Value Stocks
Growth investing has taken a back seat in 2022.
As I’ll show you, the Big Money is focused elsewhere: hunting for value stocks.
Growth investors find themselves in a tough spot this year. Inflation is raging higher, rates are rising, and of course there’s an unfortunate invasion of Ukraine by Russia. In conditions like these, growth takes a backseat to value investing.
Today we’ll look at the areas finding Big Money support. As I said before, market clouds are fading…for certain groups. Portfolios with some diversification, dividend growth, and balance are going to do just fine in 2022.
On one side of the aisle, we see relentless selling in Technology stocks. On the other, greener pastures reside, hunting for value stocks.
Let’s first dive into the data. Then I’ll show you bright spots indicating more upside.
Big Money Shows More Rotation
Rotations are the name of the game. Certain groups are ramping while others flounder. That type of mixed action is still net positive for the Big Money Index.
That’s because for the BMI to reach oversold (25%), there must be no trace of leadership. That means, nearly all stocks need to be falling to reach the green area.
Below you can see the BMI has started to rip higher as certain groups get bought. It’s at a 5-week high of nearly 50%:
Looking above, the latest gap higher in the BMI tells us there’s some buying under the surface. Drilling down one step, we can see where the buying has been via sector the last 2 weeks:
3 areas pop out: Energy, Materials, and Industrials. Since mid-February, 55% of all buys have been concentrated here.
Now, have a look at each of their sector charts over the prior 6 months. Lately, it’s been a one-way train: UP.
Here’s energy:
Oil & Gas production companies are clearly benefiting with higher crude prices. Next, let’s check in on Materials:
Buyers have been attracted to metals and minerals companies, and fertilizer producers. And that logically aligns with the inflationary backdrop. Margins expand when commodity prices surge.
Lastly, let’s check in on the Industrials sector:
Clearly this sector is a bit of a mixed bag. Defense stocks are attracting big money almost certainly due to the Russian/Ukraine conflict.
Wrapping all these groups together and it’s easy to find a “trades cheap” narrative. When we live in a world hunting for value stocks, these currently fit the bill.
Let’s go one step further.
Hunting for Value Stocks
So, what are value stocks anyway? Said simply, they are companies that trade cheaper compared to their assets and potential earnings, especially compared to growth stocks.
An environment like today, with high inflation, high energy and commodity prices, and war – these companies’ potential earnings can explode fast…especially if they are viewed as cheap.
With the forward P/E of the S&P 500 sitting at 19.7, specific areas that show relative value can be attractive. Below are 3 industries inside of Energy, Materials and Industrials seeing relentless buying:
Source: FactSet as of 3/1/2022
Now, notice that the current and forward P/Es for Oil & Gas and Metals/Minerals are well below the 19.7 for the S&P. The Aerospace and Defense industry has a higher relative PE as a group, but the names getting bought in our data are “cheaper” than the industry average.
The flight to value stocks is real. Just look at the 5 highest ranked stocks lately. Their average forward P/Es are considerably less than the S&P:
Source: FactSet as of 3/1/2022
Using data helps me focus on what’s really going on with markets. And clearly the smart money is hunting for value stocks right now. Let’s now go through a few stock examples from each sector.
Within energy, there’s PDC Energy (PDCE):
PDC sports a forward P/E of just 5.79 and a dividend yield of 1.48%. YTD it’s gained 37% with 4 buy signals.
Next up is Materials stock, CF Industries (CF):
This name has mega juice! It sports a dividend yield of 1.4% and forward P/E of 7.34. In 2022, it’s gained 16.83% alongside 9 buy signals. Yeah, that’s value buying I’ll say!
Lastly, within Industrials there’s Big Money flowing to Lockheed Martin (LMT):
Given the Russia/Ukraine conflict, buying huge defense companies like Lockheed Martin makes a lot of sense. And with a forward P/E of 16.53 and dividend yield of 2.5% – I can make the case that it’s a value play. YTD it’s ramped 29.3% with the help of 10 buy signals.
Now, obviously many of these stocks are extended. But hopefully I’ve demonstrated how the Big Money is hunting for value stocks in these uncertain times.
And the beauty is you can too! All of this analysis comes out of the MAPsignals portal. Platinum subscribers can see which stocks are getting bought on a daily basis and so much more.
In a world with constant headlines twisting and turning, data cuts through the noise.
Let’s wrap up.
Here’s the bottom line: Growth hasn’t been the place to be in 2022. The Big Money has been hunting for value stocks. Sectors like Energy, Materials, and Industrials are attracting a lot of buy signals as their forward earnings picture improves.
One day, growth stocks will have its turn to run again. But in the meantime, keep an eye on where the Big Money’s flowing…value. And companies with healthy dividend growth are top of choice too!
As always, spot the opportunity and hang in there everyone.
***And if you want even more cool data, check out Jason’s latest video: Best Oversold ETFs to Buy for March 2022. Jason lets our data uncover great opportunities.
Always remember that the process is more important than the picks.
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