With the market sputtering, this is a good time to consider
value-priced stocks. These are stocks with strong fundamental
outlooks, but trading at bargain prices. They are usually former
high-fliers that reported sales and/or earnings numbers below market
expectations, inciting growth investors to bail out.
Coincidentally, Zacks Research (www.zacks.com)
recently added a new tool to its free stock screener that could help
us spot better value candidates.
Zacks has been in the business of figuring what works and what
doesn’t, in terms of picking winning stocks for years. However,
until recently, Zacks had mostly confined its research to analyzing
stock analyst’s actions. That is, figuring out how to use changes in
analyst buy/sell ratings and earnings forecasts to predict future
stock market action. While useful for implementing growth stock
strategies, Zacks’ tools weren’t particularly useful for selecting
New Way to Pinpoint Value Candidates
However, Zacks’ new Value Score screening parameter takes a
new approach to identifying value candidates. Instead of looking at
valuation ratios, it employs a proprietary formula to pinpoint
stocks that are undervalued compared to their future earnings growth
prospects. Scores range from “A” to “F” with the usual meanings.
Here’s how to use the score to find value candidates.
Start by selecting "Screening Menu" and
Screener” from Zacks
there, you could select a Category, such as EPS Estimates, to see
the screening choices available for that category. However,
everything we’ll need is in the “Popular Criteria” category, which
comes up automatically when you select the screener.
Start by specifying “Value Score = A” and then selecting “Add” to
add that screening requirement. Next, to limit our lists to stocks
already on the move, we’ll require that analysts had recently (last
four weeks) increased their earnings forecasts by at least five
percent. Do that by entering 5 (>=5) for the minimum value of the
parameter oddly labeled “% Change F1 Est (4 weeks).” Then require a
minimum $500 million (>= 500) market capitalization (value of all
Because value strategies often take some time to play out, we’ll
focus on candidates paying significant dividends. That way, we’ll
receive income while waiting for the market to discover our stocks.
Enter three percent (>= 3) for Dividend Yield Percentage. Delete or
reduce that requirement if you want to see more stocks.
My screen turned up six candidates, not surprisingly, all
Alon USA Partners (ALDW): A master limited partnership (MLP),
Alon operates a crude oil refinery in Texas. Dividend yield is 11.1
HollyFrontier (HFC): Owns and operates five oil refineries in
five different states. Yield 3.6 percent.
PBF Energy (PBF): Owns and operates three oil refineries, one
in Ohio, and two in New Jersey. Yield 3.7 percent.
PetroChina ADR (PTR): A major oil company headquartered in
China. Yield 5.1 percent.
Sunoco (SUN): An MLP that distributes refined products to
convenience stores and other dealers in 26 states. Yield 3.1
Targa Resources (TRGP): Through its subsidiaries, owns
natural gas pipelines and associated facilities mainly in the Gulf
Coast states. Yield 3.3 percent.
For diversification purposes, limit your purchases to only one of
the three refining only companies listed.