Value stocks

Three buy par value stocks that beat earnings but were still beaten

Value stocks continue to be the only bright spot in this lackluster market. How to use the StockNews filter to uncover hidden diamonds in the rough.


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2022 continues to loom as a year where value will finally outpace growth. You can see from the chart below that the performance gap is starting to close, but there is still a long way to go. The gap between growth and value reached historic extremes during the last Fed easing cycle, even surpassing the dotcom bubble of 1999-2000. Now that the Fed is on a tightening path, this spread should continue to converge. Expect value to outpace growth in the coming quarters. Value names also tend to have a much higher and safer dividend yield to help in these tumultuous times.

Many valuable names have been spared recent sales. Some, however, did not. These are the names I wanted to check out as potential top candidates in the future. The StockNews filter is the ideal tool to use to identify these types of stocks. Here is how I configured this particular screen:

  • POWR rating of A or B- Strong Buy or Buy Listed stocks only
  • Industry rating of A or B – Industries rated Strong Buy or Buy
  • Value class component of top-rated Value A stocks only

This gave me a list of 104 potential candidates. I refined the search further by limiting it to stocks trading above $20. Nothing wrong with the low priced stocks, but I just generally avoided those names. As a type of options, these cheaper stocks tend to present fewer opportunities from a strategic perspective. This is especially true for stocks under $10. For those who like low-priced stocks, POWR stocks under $10 are the perfect choice.

This narrowed the list down to just 47 stocks trading over $20 and meeting the criteria. Then I looked at those 47 stocks and drilled down to find the stocks that have already reported earnings this quarter and beat expectations. Finally, I only wanted stocks that were hovering near major support and trading near 52-week lows. So highly rated value stocks over $20 that beat earnings but still sold off and are trading near major support. The combination of better earnings and a lower share price leads to a lower and more attractive P/E multiple.

That left only three candidates.

Ternium

TX stock is an A-rated Strong Buy stock. It is also number 6 out of 33 in the A-rated steel industry. It carries an A component rating for value.

Ternium (TX) reported better-than-expected earnings of more than $1.00 per share on April 26. Still, the stock is now lower. Stocks are reaching oversold levels near horizontal support at $38.50 that have signaled medium-term lows in the past. A dividend yield of over 4.5% and a payout ratio of less than 25% also make Ternium a very attractive income stock.

Longer term investors should consider adding TX to the portfolio. Short-term options traders might consider selling the June $36/$34 sell spread for a net credit of around 50 cents. The maximum gain is $50 per spread with a maximum risk of $150 per spread. The return on risk is 33%. The short strike price of $36 provides an 8.75% downside cushion from the closing price of $39.58 for TX.

Intel

Intel is a B-rated buy stock. It is number 29 out of 96 in the B-rated semiconductor industry. It has an A value component rating.

Intel reported earnings on April 28 that beat 7 cents a share. This is the fourth consecutive quarter of earnings beatings, but the stock has fallen more than 20% during this period. Stocks are approaching oversold readings at the major support level of $44. The previous times it was this oversold were premonitory times to buy. A dividend yield of 3.3% coupled with a payout ratio of less than 30% makes INTC a strong stock in terms of income/value.

Longer term investors should consider adding INTC to their portfolio. Short-term options traders might consider selling the June $42.50/$40 sell spread for a net credit of around 50 cents. The maximum gain is $50 per spread with a maximum risk of $200 per spread. The return on risk is 25%. The short strike price of $42.50 provides a 4% downside cushion from the closing price of $44.30 for INTC.

Herbalife

HLF stock is a B-rated buy stock. It is also number 3 out of 8 in the A-rated medical consumer goods industry. A component rating for value as well.

Herbalife reported earnings on May 3 that beat 13.79%. Stocks are approaching oversold readings at the $24 major support level. The previous time it was this low, it was at the height of the Covid crisis. No dividends, but a historically low P/E ratio now below 7 makes HLF an attractive value proposition.

Longer term investors should consider adding HLF to the portfolio. Short-term options traders might consider selling the June $22.50/$20 sell spread for a net credit of around 45 cents. The maximum gain is $45 per spread with a maximum risk of $205 per spread. The return on risk is 21.95%. The short strike price of $22.50 provides a downside cushion of 7.82% from the closing price of $24.41 for HLF.

Volatility means opportunity in the current market environment for long-term investors and short-term traders. Using the StockNews filter to uncover quality value stocks at an attractive entry point gives you the edge you need to better navigate near-term uncertainty.

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What to do next?

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All my wishes!

Tim Biggam

Editor, POWR Options Newsletter


shares fell $6.81 (-1.66%) in premarket trading on Monday. Year-to-date, it’s down -13.13%, versus a % rise in the benchmark S&P 500 over the same period.


About the Author: Tim Biggam

Tim spent 13 years as Chief Options Strategist at Man Securities in Chicago, 4 years as Chief Options Strategist at ThinkorSwim and 3 years as a Market Maker for First Options in Chicago. He makes regular appearances on Bloomberg TV and is a weekly contributor to the TD Ameritrade “Morning Trade Live” network. His primary passion is to make the complex world of options more understandable and therefore more useful to the everyday trader. Tim is the editor of the POWR Options newsletter. Learn more about Tim’s journey, as well as links to his most recent articles.

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