Retailers aren’t the only ones with holiday sales; investors can also find high value for low prices in the stock market (^DJI, ^GSPC, ^IXIC).
Yahoo Finance Markets and Data Editor Jared Blikre, who also hosts Yahoo Finance’s Stocks in Translation podcast, explains where investors should look to find the best value stocks this holiday season.
To watch more expert insights and analysis on the latest market action, check out more Market Catalysts.
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It’s a time of year when everybody’s hunting doorbusters and bargains, but while you’re fighting for half-priced air fryers, there is another clearance aisle hiding in plain sight. That’s going to be value stocks.
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And that’s what we’re digging into on today’s stocks and translation, cheap names with real earnings power, showing you how to build your own holiday stock shopping list with the Yahoo Finance data and tools.
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Let’s start with what a value stock is. It’s a stock priced low versus its earnings, its assets, or its cash flow, leaving room for upside if expectations improve.
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Think of it as a good jacket on the sale rack. Nothing wrong with the fabric, it’s just maybe out of favor or in the wrong size pile. But if the fundamentals hold up, you’re basically paying less than full price for the same underlying business.
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But every sale rack has its duds. And in the stock market, that is called the classic value trap.
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Now, that is a stock that looks cheap but keeps falling because their business is deteriorating and not just because Wall Street sentiment is temporarily negative.
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Maybe earnings are starting to roll over, maybe the industry is shrinking or maybe the dividend is about to be cut. On screen, it looks like a steal, but you soon face regret.
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So be careful because in stock picking, there are no returns. Now, let’s build a shopping list using the Yahoo Finance screener.
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You can find a great preset just by searching Yahoo Finance screener and clicking on undervalued growth stocks.
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And here we have some of the categories here. Over 100 names are going to pop up in the results. So let’s check in on the filters it’s using, then we can whittle down that list.
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So it starts here with a trailing price to equity ratio from 0 to 20. So you’re basically paying under $20 for each dollar of last year’s profits.
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It uses the so-called peg ratio at a setting of below one, which means that the price is low compared with how fast earnings or profits are growing.
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It requires earnings per share to be at least 25% above one year ago. So we’re not buying total laggards.
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And it limits the baskets to companies listed on the NYSE or the Nasdaq, just the major US exchanges.
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Now, here’s the basket that I ended up with, and we’re showing year-to-date returns here on this heat map. I took out all the companies under $1 billion in market cap, and I’m looking for companies paying a nice dividend.
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So that you get paid even if the stock price goes nowhere. You can do this by sorting or filtering for forward dividend yield.
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But always research the dividend situation of a company because too good to be true, usually is.
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When a stock stock price gets beaten down, the dividend yield goes up and it can look huge on the screen.
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Sometimes it’s a real doorbuster, sometimes it’s a sign that the market expects a dividend cut.
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Now, let’s take a look at two of the bigger names. Take Pfizer here. It looks like a classic value trap. I’m going to put this on a five year so you can see in the performance.
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This is after its stock COVID business uh fell off a cliff and the stock price dropped.
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So it’s down 3% this year and the company still pays a hefty dividend around 6 to 7%. But cash flow is tighter as it spends to rebuild the drug pipeline, which is why the peg looks weak.
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It’s real income today with real questions about longer-term growth. Then let’s take a look at Ford here, which is cyclical value, tied to the US economy with a big sticker yield around 5 to 6%.
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It pays a regular dividend, but profits are under pressure from EV losses and a choppy auto cycle, and also guidance has come down.
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Its negative peg ratio tells you that Wall Street expect earnings to shrink, not to grow. And this is a doorbuster where the yield is real, but the fundamentals, they have to earn it.
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It’s up over 30% this year, but it’s still been cut in half from its 2022 all-time highs.
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So, how do you keep your holiday value basket from turning into a bag of returns? Here is what to watch next. And I got a nice little list here for you.
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First, you want to watch out for earnings results and guidance. Are the profits still growing or are they starting to roll over? Then look for dividend changes, hikes, pauses, cuts because the income line is often the first place stress shows up.
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Next, check in on your basket and how it’s doing versus the S&P 500 or the Nasdaq over time. And finally, watch for changes in interest rate expectations and chatter, because shifts in rates can swing the pendulum between value and growth.
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And tune into the Stocks and Translation podcast for more jargon busting deep dives. New episodes can be found Tuesdays and Thursdays on Yahoo Finance’s website or wherever you find your podcast.
