Value stocks

Where can investors find value stocks?

FFrom hotels to furniture to sports and leisure, many small caps – although more volatile than their larger counterparts – could be an undervalued buying opportunity.

Although volatile market conditions in recent weeks have helped stocks look more attractive, many stock prices are still trading above fair value. Earnings season could see companies issue warnings about their outlook amid the impact of war in Ukraine on revenues and profits.

A report of Barrons argues that if investors are looking for a bargain before earnings release, they’d be better off picking small caps. “[They] have more attractive valuations than their big brothers and have a better chance of rising if they beat earnings expectations,” noted markets reporter Jacob Sonenshine.

Here are a few sectors that may offer value investing opportunities, and a few small-cap stocks that might be worth keeping on your watch list.

“[Small-cap stocks] have more attractive valuations than their big brothers and have a better chance of advancing if they beat earnings expectations” – Baron’s Jacob Sonenshine

Bloomin’ Brands shares may be undervalued

Rising inflation could impact reservations and sales in hotels and restaurants. In February, Bloomin’ Brands [BLMN] announced a 5% price increase to offset rising labor costs and inflationary pressures.

The company’s revenue growth has slowed in the past two quarters and is expected to decline again in Q1 2022. Bloomin’ Brands released forecasts of $1.10 billion to $1.135 billion, which would represent an increase of 13 % from the reported $987.5 million. in the first quarter of 2021. Despite this, the profit margin looks healthy and is currently higher than it was before the pandemic. Even if the company fell short of its forecast, the stock can be considered undervalued.

As of April 21, Bloomin’ Brands stock price was trading at a 12-month price-to-earnings ratio (P/E) (TTM) of 11.16, below the restaurant industry average of 16 ,35. The results for the first quarter of 2022 are expected to be published on April 29.

The outdoor recreation market continues to grow

Many people came out of lockdown with the intention of staying active and healthy, a trend that shows no signs of waning. Companies that provide sportswear equipment and focus on recreational activities, such as Camping World [CMW]Johnson away [JOUT] and Vista Outdoor [VSTO] remain extremely undervalued.

After a period of stagnant growth before the onset of the pandemic, Vista Outdoor’s sales growth has been positive in the quarters since. Revenue soared 38% in the three months to the end of December, its sixth consecutive quarter of record financial results.

The company has improved free cash flow and margins, and believes its sports products segment “can continue to operate with strong EBITDA margins” thanks to “continued lower costs” and “opportunities to continue growth and operational efficiency”.

38%

Vista Outdoor revenue up in December quarter

As of April 21, Vista Outdoor’s TTM P/E ratio was 5.17. The company is due to release its fourth quarter 2022 results on May 5.

Small wellness actions remain resilient

While supply chain issues have squeezed big names and household brands in the health and wellness sector, some smaller players appear to have remained largely untouched. These include UK retail group Supreme [SUP.L].

The sports nutrition specialist sells vitamins as well as vaping products. The company posted strong results in the first half of fiscal 2022. Revenue was up only a modest 9% year-over-year, but gross profit climbed 27%, while the pre-tax profit increased by 25%.

The company provided a trading update earlier in April that indicated that raw material price inflation against whey powder could affect near-term profitability. Despite this, the stock can be considered “undervalued”.

It had a TTM P/E ratio of 17.18 as of April 21 and a market capitalization of £188.4m. The annual results should be published at the beginning of June.

Demand for home furnishings is still healthy

Demand for furniture skyrocketed during the pandemic as more people were confined to their homes. Although U.S. homebuilder confidence fell to a seven-month low in April due to rising mortgage lending and supply chain issues, demand for home furnishings is expected to remain strong .

This should be good news for Bassett Furniture Industries. [BSET], which derives its revenue from a combination of retail and online sales, wholesale and logistics. After recording a net loss in 2019 and 2020, it returned to profitability in 2021.

For the three months to the end of January, the company said it had made progress “reducing the huge [stock] backlog that exploded in the 18 months of the pandemic leading up to the start of our fiscal year.”

The stock had a TTM P/E ratio of 9.46 as of April 21 and a market capitalization of $167.2 million. Q2 2022 results are expected to be released at the end of June.

Warning Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not expressing opinions) is provided for informational purposes only and does not take into account your personal circumstances or objectives. Nothing in this document is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically restricted from processing prior to providing such material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer an opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets will not be liable for any loss you may incur, directly or indirectly, as a result of any investment based on the information contained herein.

*Tax treatment depends on individual circumstances and may change or differ in a jurisdiction other than the UK.

Keep reading for FREE