Investors are fearing an imminent recession in the United States and the Fed has cut its 2019 and 2020 growth forecast. However, the S&P 500 has just seen the best quarterly gain since 2009. The key equity gauge is up about 13.1% this year. Overall, 90% of the S&P has gained this year. A dovish Fed and improvement in U.S.-China trade talks have made this possible.
After the astounding gains, thoughts of a correction in the market or overvaluation concerns are justified. This is especially true given that analysts’ earnings estimates for Q1 and Q2 of 2019 are declining. No wonder, investors will be in search of cheap stocks (read: Is Market Overvalued? 5 Cheap Top-Ranked ETFs to Play).
Where Lies Those Hidden Gems?
Per an article published on seekingalpha, “value stocks are now at the deepest discount to growth since 2000,” ideally offering a good buying point. A hedge fund manager also believes so. Per the manager, most of the beaten-down shares offering attractive earnings growth lie in the value segment.
Sanford C. Bernstein also recommended value shares despite their persistent underperformance. Investors should note that the Russell 1000 Value Index has underperformed the Russell 1000 Growth Index over the past 12 years.
The said, the hedge fund manager pointed out that both the Stoxx Europe 600 Index and MSCI Europe Value Index are trading below long-term averages on a price-to-earnings basis and are yet to regain levels seen before the fourth-quarter sell-off. This calls for a buying opportunity especially with an accommodative ECB.
Why Value ETFs May Gain in 2019?
A pool of global worries leads us to believe that U.S. stocks are expected to be stable in the near term but choosing a value investment is a great idea at the current level given a host of tensions, including uncertainty regarding the trade war and slowdown in developed economies like the Euro zone and Japan as well as political uncertainty pertaining to Brexit.
Investors are even apprehensive of an economic recession in the United States, meaning the zone is also not risk-free. U.S. value funds may have underperformed the growth ones in a rising rate environment in 2018, but rates in the United States are likely to remain low in 2019 as the Fed has signaled that it will remain dovish this year.
Though there were signs of improvement in 2019, U.S.-China trade tensions are not resolved yet. Even if the duo manages to strike a deal, the hope is currently priced in at the current level. Some analysts are of the view that any real deal appears as a 'sell the news' opportunity for investors right now.
Top Value ETF & Stock Picks
Against this scenario, we highlight a few top-ranked value ETFs and stocks that can be good income-earners over the medium term.
ETF Picks
iShares Russell 1000 Value ETF (NYSE:WD)
The 721-stock fund follows the Russell 1000 Value Index and measures the performance of the large-capitalization value sector of the U.S. equity market. It charges 20 bps in fees. The fund has a Zacks ETF Rank #1 (Strong Buy) (read: Q1 ETF Asset Report: Emerging Markets Win).
O'Shares FTSE US Quality Dividend ETF OUSA
The underlying index of the fund – the FTSE US Qual / Vol / Yield Factor 5% Capped Index –measures the performance of publicly-listed, large-capitalization and mid-capitalization dividend-paying issuers in the United States. It charges 48 bps in fees and has a Zacks ETF Rank #1 (read: Top-Ranked Dividend ETFs Crushing the Market).
Stock Picks
Foot Locker Inc. (NYSE:FL)
Headquartered in New York City, the company is a leading global retailer of athletically inspired shoes and apparel. The stock has a Zacks Rank #1 and a top Value Score of A. The stock also has a low forward P/E ratio of 11.65x.
Walker & Dunlop Inc. (NYSE:WD)
The Zacks Rank #1 company is engaged in providing commercial real estate financial services in the United States, with primary focus on multifamily lending. It comes from a top-ranked Zacks industry (top 39%). It has a Value Score of A and a forward P/E ratio of 9.43x.
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Walker & Dunlop, Inc. (WD): Free Stock Analysis Report
O'Shares FTSE US Quality Dividend ETF (OUSA): ETF Research Reports
iShares Russell 1000 Value ETF (IWD): ETF Research Reports
Foot Locker, Inc. (FL): Free Stock Analysis Report
Original post
Zacks Investment Research