Design a balanced portfolio with these 4 low P/CF stocks – April 8, 2022

Tackling soaring commodity prices is a top priority for the Federal Reserve, and policymakers have hinted at a methodical tightening of monetary policy. The Federal Reserve has reported a steady increase in the benchmark interest rate and a reduction in its $9 trillion balance sheet by about $95 billion per month. Officials agreed to cut $60 billion a month from the US central bank’s Treasury holdings and $35 billion from mortgage-backed securities holdings.

Clearly, the Federal Reserve’s hawkish stance calls for a cautious investment strategy. So, as investors rebalance their portfolios, market pundits are betting on value stocks. Investing in stocks made on a diligent analysis of value is generally considered one of the best practices. In value investing, investors choose cheap but fundamentally sound stocks. There are a number of ratios to identify stocks of value, but none alone can conclusively determine their inherent potential.

Each ratio helps an investor understand a particular aspect of the company’s business. Such a report Price to cash flow (or P/CF), can do wonders in stock picking if used with caution. This measure assesses the market price of a stock relative to the amount of cash flow the company generates per share – the lower the number, the better. TotalEnergies SE (TTE free report), Target company (TGT free report), Signet Jewelers Limited (GIS free report) and Micron Technology, Inc. (MU Free report) show a low P/CF ratio.

Why the P/CF ratio?

You must be wondering why we are considering this when the most widely used valuation measure is price/earnings (or P/E). Well, one of the important factors that makes P/CF a very reliable measure is that operating cash flow adds non-cash charges like depreciation and amortization to net profit, truly diagnosing financial health. from a company.

Analysts warn that a company’s earnings are subject to accounting estimates and management manipulation. Again, the cash flows are quite reliable. Net cash flow reveals how much cash a company generates and how efficiently management deploys it.

A positive cash flow indicates an increase in the company’s liquidity. This gives the company the means to settle its debts, meet its expenses, reinvest in the business, withstand downturns and finally take actions favorable to shareholders. A negative cash flow implies a decrease in the company’s liquidity, which, in turn, reduces its flexibility to support these efforts.

However, an investment decision based solely on the P/CF metric may not yield the desired results. To identify stocks that are trading at a discount, you should broaden your search criteria and consider price-to-book ratio, price-to-earnings ratio, and price-to-sales ratio. Added a favorable Zacks rank and a Value rating of A or B to your search criteria should lead to even better results because these eliminate the risk of falling into a value trap.

The bargain hunting strategy

Here are the real value stock selection parameters:

P/CF less than or equal to the X-Industry median.

Price greater than or equal to 5: The stocks must all trade at a minimum of $5 or more.

Average volume over 20 days greater than 100,000: Substantial trading volume ensures that the stock is easily tradable.

P/E using (F1) less than or equal to X-Industry Median: This setting preselects stocks that are trading at a discount or equal to its peers.

P/B less than or equal to the X-Industry median: A lower P/B relative to the industry average implies that there is enough room for the stock to win.

P/S less than or equal to X-Industry Median: The P/S ratio determines how a stock’s price compares to the company’s sales – the lower the ratio, the more attractive the stock.

PEG less than 1: The ratio is used to determine the value of a stock taking into account the company’s earnings growth. The PEG ratio gives a more complete picture than the P/E ratio. A value below 1 indicates the stock is undervalued and investors should pay less for a stock that offers strong earnings growth prospects.

Zacks rank less than or equal to 2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform regardless of the market environment.

Value score less than or equal to B: Our research shows that stocks with a Style Score of A or B when combined with a Zacks Rank #1 or 2 offer the most upside potential.

Here are four of the 17 actions that qualified the screening:

TotalEnergies, which operates as a globally integrated oil and gas company, sports a No. 1 Zacks ranking and has an expected earnings-per-share (EPS) growth rate of 6.6% over three to five years. The company TotalEnergies has a positive surprise on the profits of the last four quarters of 18.9% on average. You can see the full list of today’s Zacks #1 Rank stocks here.

The Zacks consensus estimate for current year EPS from TotalEnergies suggests growth of 45.8% over the prior year period. TotalEnergies has a value score of A. TTE shares have gained 10.2% over the past year.

Target, a general merchandise retailer in the United States, holds a No. 2 Zacks rank and has an expected EPS growth rate of 16.5% over three to five years. Target has a positive surprise on earnings for the last four quarters of 21.3% on average.

Zacks’ consensus estimate for Target’s current-year sales and EPS suggests growth of 3.5% and 6.7%, respectively, over the prior-year period. Target has a value score of B. TGT shares have gained 11.2% over the past year.

Seal, the world’s largest diamond jewelry retailer, holds No. 2 Zacks. It has an expected EPS growth rate of 8% over three to five years. Signet has a trailing four-quarter earnings surprise of 73.8%, on average.

Zacks’ consensus estimate for Signet’s current-year sales suggests growth of 5.2% over the prior-year period. SIG has a Value Score of A. The stock has risen 11.5% over the past year.

Micron, which designs, manufactures and sells memory and storage products worldwide, carries a No. 2 Zacks rank. It has an expected EPS growth rate of 32% over three to five years. Micron has a four-quarter earnings surprise of 6.6% on average.

Zacks’ consensus estimate for Micron’s current-year sales and EPS suggests growth of 21.1% and 57.4%, respectively, over the prior-year period. MU has a value score of A. The stock is down 23.1% over the past year.

You can get the rest of the stocks on this list by signing up for your free 2-week trial to Research Assistant now and start using this screen in your own trading. Moreover, you can also create your own strategies and test them before diving into investing.

The research assistant is a great starting point. It’s easy to use. Everything is in plain language. And it’s very intuitive. Start your search assistant trial today. And the next time you’re reading an economic report, open up the research assistant, plug in your findings, and see what gems come out.

Click here to sign up for a free trial of Research Assistant today.

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold securities short and/or hold long and/or short positions in the options mentioned herein. An affiliated investment adviser may hold or have shorted securities and/or hold long and/or short positions in options mentioned herein.

Disclosure: Information on the performance of Zacks portfolios and strategies is available at:

About Raymond A. Bentley

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