Wall Street looks to close out the week with more than 43 percent of the S&P 500 in a bear market, having fallen at least 20 percent from 52-week highs.
With volatile swings taking down so many S&P 500 names, Chantico Global CEO Gina Sanchez says a flight to value stocks could be the best way to weather any more turbulence.
“We’re telling our clients that they should be looking for more robust earnings. We’re looking for more value names,” Sanchez said on CNBC’s “Trading Nation” on Thursday.
Value stocks are favored for their low valuations with an emphasis on consistent earnings and high dividend yields. The opposite approach, growth investing, focuses on future potential, and investors often pay a high premium to the rest of the market.
“If you look at the value ETF IVE and you look at the individual stocks in the IVE and the estimates that are being forecasted, it seems like there’s actually tremendous upside for the value ETF even from here,” added Sanchez.
The IVE value ETF is expected to post earnings growth in fiscal 2018 more than double that of a year earlier as tax cuts fatten up the bottom line. ETF components such as AT&T and Ford have already reported earnings beats.
“Value has re-established itself finally as a leader in the market, and it’s been a very long time since we’ve seen that, and I actually think that this run has some legs,” said Sanchez.
The past week’s steep sell-offs have Strategic Wealth Partners President Mark Tepper seeing value in two stocks: an airline and a biotech firm.
“We like American Airlines and Celgene, and the market isn’t fully appreciating their growth potential right now, so they’re trading at really significant discounts,” Tepper said on “Trading Nation” on Thursday. “One of the things we like to look at is PEG ratio, which is how much investors are willing to pay for a company’s growth.”
The PEG ratio, or price/earnings to growth ratio, provides a snapshot of a company’s ability to expand measured against its valuation. The lower a PEG ratio, the more undervalued a company might be relative to its growth potential. The S&P 500 trades with a PEG ratio of 1.2 forward earnings, while American trades at 0.5 and Celgene at 0.36.
“Both of these have a significant margin of safety, and I think long-term investors are going to be very happy if they’re holding these stocks,” added Tepper.