Wed Jun 25 2014
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3 Perfect Value Stocks to Buy Now

How can there be any value stocks when the major indices are trading at all-time highs?

I’m the first to admit that valuations are stretched. In 2009 was easy to find value stocks. Heck, everything was a value back then. But in 2014, it’s hard to find stocks that are considered undervalued.

But for those investors interested in value and solid fundamentals, there are still a few hidden gems out there. You just have to dig deeper to find them.

Use the Zacks Rank to Find the Hidden Gems

I screened for companies with a Zacks Rank #1 (Strong Buy) or #2 (Buy) recommendation. These are companies that have rising earnings estimates. Rising earnings estimates usually indicates that analysts believe that there’s something good going on with the company in the next 1 to 3 months that warrant a more optimistic view on earnings.

With so many companies complaining about the weather dampening sales or a sluggish consumer, I wanted to find companies that aren’t using these excuses. Earnings growth is still a reality at many companies.

I also looked for companies with a forward P/E under 15.

This may not seem that cheap to those of you who routinely seek out value. Some value investors only consider a P/E under 10 to be a bargain. But with the average forward P/E of the S&P 500 at 17, I still consider companies trading anywhere below that to be a bargain compared to the overall market.

Special Sauce

Besides a low P/E, there are also a few other indicators an investor can look for to sniff out value.

I like to look for a low price-to-book (P/B) ratio. A P/B ratio under 3.0 usually indicates value.

And if I can get double digit earnings growth on top of all of these value indicators, even better.

Values DO exist. It’s not too late to find a bargain. I found three in the hot sectors of transportation, energy and industrials.

Yes, the shares are trading near all-time highs. But that doesn’t mean they aren’t cheap.

3 Perfect Value Stocks

1. Trinity Industries, Inc.
2. Canadian Natural Resources
3. Columbus McKinnon

1. Trinity Industries (TRN – Snapshot Report)

Trinity Industries manufactures and leases rail cars and inland barges. It saw record first quarter results on strong rail car and barge demand. Its Rail Group had a record backlog of 42,630 units valued at $ 5.2 billion. The Inland Barge Group also had a healthy backlog with a value of $ 508 million.

On Apr 29, it raised full year earnings guidance. Analysts expect earnings to grow 59.3% in 2014.

How cheap is it?

Forward P/E = 11.4
Price-to-book ratio = 2.2
Zacks Rank #1 (Strong Buy)

2. Canadian Natural Resources (CNQ – Analyst Report)

Canadian Natural Resources is an independent oil and natural gas explorer and producer headquartered in Calgary. It explores in Western Canada, the North Sea and Offshore West Africa.

In the first quarter, North American E&P crude oil and NGLs production grew by over 5% compared to the prior quarter. It also completed and integrated a recent acquisition.

On May 8, it raised its 2014 annual production guidance, which is what most analysts look at when evaluating an E&P.

How cheap is it?

Forward P/E = 13.5
Price-to-book ratio = 2.1
Zacks Rank #2 (Buy)

3. Columbus McKinnon (CMCO – Snapshot Report)

Columbus McKinnon makes industrial products such as hoists, actuators, cranes and lifting and rigging tools. In the fiscal fourth quarter revenue rose 11% due to strong demand and higher sales volume.

It completed an installation of a large Rail & Road project in Canada and saw Europe rebound from its lows. Sales in the U.S., which were 57% of total sales in the quarter, rose 7.3%, while sales outside the U.S. jumped 16.3%.

Both U.S. and Eurozone capacity utilization are leading market indicators for Columbus McKinnon. The company’s results usually trail these indicators by about 2 months. In both the U.S. and Eurozone, capacity utilization rose year over year as of March with the U.S. jumping to 77.6% from 76.8% in 2013 and the Eurozone hitting 80.1% at the end of March 2014 compared to 77.6% a year ago.

With the global economy slowly recovering, double digit earnings growth of 26% is expected in fiscal 2015.

How cheap is it?

Forward P/E = 13.7
Price-to-book ratio = 1.9
Price-to-sales ratio = 1.0
Zacks Rank #1 (Strong Buy)

[In full disclosure, the author of this article owns shares of TRN.]

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Tracey Ryniec is the Value Stock Strategist for She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at@TraceyRyniec.

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