Value stocks

Buy these top-ranked value stocks right now?

The final trading days of January provided a much-needed rebound after a brutal month for stocks, with the S&P 500 suffering its worst month since March 2020. Just last week, the Nasdaq was down 17% from its record highs. and the S&P 500 was hovering around 10% off its highs, with both well below their 200-day moving averages.

Some bullish optimism has since returned. Wall Street decided it was time to start buying battered stocks that had seen much of their pandemic gains washed away and valuations recalibrated closer to pre-covid levels. The benchmark is once again approaching its 50-day moving average and the tech-heavy Nasdaq is up nearly 8% from Friday’s lows.

The market could see more selling and certainly increased volatility in the weeks and months to come, given the lingering covid effects on economic growth and the increased likelihood of further Fed rate hikes.

Staying away is a possibility amid episodes of heightened uncertainty. Keeping cash on hand to invest in stocks and ETFs after big downturns is crucial, and that’s what a lot of Wall Street just did. Additionally, trying to call a bottom is extremely difficult and can often only be done accurately in hindsight.

Also remember that interest rates will have to climb much higher to make equities globally unattractive. Additionally, the outlook for S&P 500 margins, sales and earnings has proven resilient and historically strong for 2022 and 2023.

This means that investors, especially those with longer-term horizons of a few years or more, might consider buying strong stocks at strong valuations, even during periods of volatility and selling…

KB Home KBH

KB Home is one of the largest home builders in the United States, currently operating in 47 markets. KBH attempts to build homes in prime areas of states such as Colorado, Arizona, Texas, California and Nevada. KBH allows buyers to customize many aspects of their home. KBH is also committed to offering more energy-efficient offerings, with the company boasting that it is “the first builder to ensure that every home we build is ENERGY STAR certified”.

KBH has benefited from the boom in the covid housing market which has been driven by low interest rates, the desire for space, remote working, etc. Even better, millennials are finally fueling the market. This is the strength of KB Home since a majority (62% in 2021) of its customers are first-time buyers.

Additionally, reports suggest that the US housing market is still millions of single-family homes short of current demand. It should also be recalled that even if the rates for 30-year mortgages are at their lowest (around 2.65% in January 2021), they are still below their pre-covid liquidation levels and very low compared to historical norms at 3 .55% at the moment.

Image source: Zacks Investment Research

KBH beat Zacks’ fourth-quarter earnings estimates in January, with quarterly revenue up 40%. Meanwhile, its FY21 sales soared 37% to $5.7 billion and its net income jumped 91% to $565 million. KB Home closed the year with a backlog of $4.95 billion, up 67%. Despite all the economic challenges, the company raised its outlook for 2022 and projected an average selling price between $480,000 and $490,000, up from its average of $423,000 last year.

Zacks estimates predict that KB Home’s fiscal 2022 revenue will grow 30% to $7.5 billion and climb another 12% in fiscal 23 to $8.4 billion. Its adjusted earnings are expected to climb 68% this year and 10% in 2023. KBH’s consensus earnings estimates for fiscal 22 and 23 have jumped 29% and 25%, respectively, since its fourth-quarter release.

KB Home’s EPS reviews are helping it land a Zacks Rank #1 (Strong Buy) right now, and Wall Street is high on the stock with seven of the 10 brokerage recommendations Zacks has at “Strong Buys.” KBH is also part of the Building Products – Home Builders space which ranks in the top 25% of over 250 Zacks industries. And its dividend yield of 1.4% exceeds the 1.3% of the S&P 500.

Zacks Investment ResearchImage source: Zacks Investment Research

KB Home’s dividend isn’t boosted by falling stock prices, rising 96% in the past three years to top the 70% of the S&P 500 and its industry average. The stock has been up and down for 12 months and, at $42.68 a share, it is trading nearly 18% below its May highs.

KB Home’s current Zacks consensus price target represents a 33% upside from Wednesday’s closing levels. And KBH is about to break above its 200 and 50 day moving averages. In keeping with today’s theme, KBH is also trading at roughly ten-year lows (barring the covid selloff) at 4.0X forward 12-month earnings. That marks a massive reduction from its industry’s 8.7X.

Winnebago Industries, Inc. WGO

Winnebago builds motorhomes, travel trailers, fifth wheel products and boats under several brands, including its namesake, Chris-Craft, Grand Design, Newmar and others. WGO completed its acquisition of the industry’s fastest-growing high-end pontoon boat maker, Barletta, at the end of August – it bought Chris-Craft in 2018.

Winnebago’s business is somewhat cyclical, with big-ticket items often going out of style quickly in times of economic distress – the last major year-over-year sales decline in 2009. Since then, WGO has been a largely unstoppable run, posting strong double-digit sales growth. in nine of the past 12 years.

Unlike the financial crisis, the pandemic has helped fuel Winnebago for a variety of reasons. People are brimming with money from the booming market and many more have decided to change their way of life. WGO posted sales growth of 19% in fiscal 2020 and 54% in fiscal 2021 (period ended August 28) to help its adjusted earnings soar 230%. Winnebago just released another set of impressive quarterly results (Q1 FY22) in December.

Zacks Investment ResearchImage source: Zacks Investment Research

Looking ahead, Zacks’ estimates predict that its revenue for fiscal 2022 for all of fiscal 2022 will grow another 26% to $4.56 billion, versus. $2.36 billion in fiscal 2020. And Winnebago’s adjusted earnings are expected to increase 44%. The company’s bright outlook amid economic headwinds helped it raise its guidance, pushing its FY22 consensus EPS estimate up 31% since December, with the company up 11% exercise 23.

Winnebago’s recent earnings revisions help it land a No. 1 (Strong Buy) Zacks rank at the moment, and it has crushed our quarterly earnings estimates by an average of 40% over the past four quarters. WGO executives beefed up its share buyback program in 2021 and increased its dividend payout, currently yielding 1%.

Zacks Investment ResearchImage source: Zacks Investment Research

Shares of Winnebago have soared 600% over the past decade to crush 330% of its highly ranked industry. The stock has been cooling, with stability roughly over the past 12 months. WGO closed regular trading on Wednesday 20% below its record highs and 30% below its current Zacks consensus price target.

Additionally, WGO is trading at a 60% discount to its own year highs at 5.9x 12-month forward earnings and offers solid value relative to its industry. More impressively, WGO is trading at a roughly 10-year low despite its stock performance beating the market.

Just Released: Zacks Top 10 Stocks for 2022

In addition to the investment ideas discussed above, would you like to know our top 10 picks for all of 2022?

From its creation in 2012 to 2021, the Zacks Top 10 Stocks portfolios gained an impressive +1,001.2% vs. +348.7% for the S&P 500. Now our research director has combed through 4,000 companies covered by the Zacks Ranking and selected the top 10 tickers to buy and keep. Don’t miss your chance to enter…because the sooner you do, the better your chances of winning.

See actions now >>

Click to get this free report

KB Home (KBH): Free Stock Analysis Report

Winnebago Industries, Inc. (WGO): Free Stock Analysis Report

To read this article on Zacks.com, click here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.