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This is the Value Investor Podcast with Tracy Reinek, all things value, all the time.
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Welcome back, value Investors. So I know many value investors are concerned about what's going on in the stock market. We have soaring semiconductor stocks in the storage area in Micron and Sandisk. A lot of the other AI stocks have resumed their rallies as well. Some are not as stretched as those two are, but I've been seeing a lot of charts floating around social media in even just the last week comparing to 1929 or 1999, things that were going on in those bubble eras before a big bust came. I just saw a chart today with the RCA Radio Corporation of America, and it had a huge rally that looks kind of similar to what Micron is doing right now, starting in 1927 up till 1929. And then it crashed down in the first few years of the Great Depression. And it took, I don't know, it was a couple decades before it got back up to those highs. And that wasn't a new technology like we're seeing seeing now with AI with the radio. And you sometimes do get these kind of crazy charts around new technologies. So we need to go the other way this week as value investors and we need to look at what are pure play value stocks. Right now. I'm assuming none of them are in the technology area because those have all had big runs. But I'm not sure because I haven't run the classic value screen in quite some time. If you remember, this screen is one of my favorites. It's on Zacks.com on the premium screens. It's just called classic value with Zach's number one and number two ranks. But by classic value, it means it has all of the value fundamentals. So we don't get to choose just peg ratio or just the price to earnings, you know, which is the PE or just the price to sales, which is one of my favorite of the value screens. If you want to do just a basic screen and you only want to use one fundamental, I would choose the price to sales every time because it isn't as corrupted as the P E ratio can sometimes get to be. So I definitely would use that one. But in this screen for classic value, we're looking at all the fundamentals grouped in. That makes it a very narrow screen because not only does it have to have a price to sales ratio at one or less, it also has to have what's in the title of it, Zach's number one and number two ranks, which are the strong buys and the buys and those Ranks combined is probably close around a thousand stacks. Out of the Zacks universe, there's probably about 800 or so that are number twos and then we get another 200 or so that are number ones. So that's a pretty decent size universe. But then we also add on a value score of A or B that's on the value style scores that Zach's also has and that's pretty narrow as well. So even just taking the rank and the value score, even if we left out everything else, that would be a smaller number of stocks there with the top ranks and the top value scores. And then we have an average volume requirement. Although that's not that hard to hit. It does mean we're not going to get, you know, some small local bank with three branches that happens to be publicly traded and you know, only 4,000 of its shares trade on an average day. We're not going to get that because it's looking for over 100,000 average volume. But again, that's pretty easy to get. PE has to be under 20, the price to earnings ratio and that's a little higher than we normally go. But again, this screen is very narrow. So I'm willing to to cut the PE some slack and go a little bit above the 15 times I normally look at. We have the PEG ratio in the screen and that looks for one or under. That is what gives us the PE divided by the growth. So you get both growth plus the value. If it's one and under, that obviously is going to narrow it as well. We have price versus the cash flow and that's looking for, I think it's 20 and under as well on the price to cash flow. And we already covered price to sales. And then it wraps up with price to book. That ratios on here too. I think this one looks at two and under. On the actual screen I look, I use three, which is a little broader. But either way this will add an extra bonus value component on their price to book isn't my favorite. If I'm using any of them. I, I always lean towards the price of sales. I do like the PEG right now with the amount of growth that we're seeing, record S&P 500 earnings. And so I want to capture some of that and I can capture some of that in the peg, but also while trying to get it on a cheaper basis. And then I would probably use the PE ratio after that. But this one, it's all five of these areas plus the rank, plus the value scores. This is why it's Always extremely narrow. We've seen a number as low as 5 or 6, I believe. I'm not. I know we haven't gotten under 5, but it has been as low as 5 or 6. I've seen the most at like 12 or 13 stocks when we run this. And this time I would have guessed it would be on the lower end given what's going on with the stock market and a lot of new all time highs, some speculation and mania starting to creep in. They're making the overall market a bit more expensive, but on the earnings side and even on the sales side, we're seeing quite big gains on that aspect of it on the actual fundamentals. So this market isn't really galloping to new highs for no reason. It's galloping because we are at record S&P 500 earnings in the first quarter and it's expected to continue through second quarter for sure. But even through the end of this year in all of the Zachary 16 sectors. So these things are reflecting that it's more than just the AI revolution stocks because you know, they're not in Consumer Discretionary, at least not, not yet, not normally. But while there might be AI in some of those companies, it's not part of, you know, the chips, the infrastructure build out. That aspect of AI might get some uses though eventually on Consumer Discretionary, but on the actual AI spend that we're seeing and that we're playing off of on a lot of these stocks that's not showing up. But even with Consumer Discretionary is expected to see some growth there, but we'll see as we go through the rest of this year. Right now Consumer Discretionary is struggling quite a bit and it's getting hit by inflationary pressures. The tariffs are still on some things and not others, but price is still rising there. And then just the consumer feeling, you know, kind of in a bad place right now. Rising gasoline prices isn't helping either because we're spending billions of extra money on gas filling our cars right now and that otherwise could have been going towards other things. So consumers being kind of cautious here and that's impacting that sector right now. But what is in this screen when I run it? Like I said, I thought we would get fewer stocks because this is the growth type of period. But instead we did get 11 matches this time. And I was kind of surprised by that until I looked at the list and then saw that a couple of names are oil on the energy side and that would make some sense. They were out of favor before the Iran War. And so they were already cheap. And then we got a turnaround now happening in their earnings. So. And the stocks are off their highs. They're not really going anywhere now because oil has come down under 100 and people are abandoning that trade again. So we have cheapness across the board, but improving outlook on the P E side, on the. On the earnings and even on the sales. And then that filters down to the Zach's rank. So we are getting the higher Zacks rank, which a year or two ago we were getting, you know, fours and fives on a lot of the energy as those earnings estimates kept being cut. But right now they're being raised. So right now is the good fundamental time to get some energy stocks with these conditions. So there's a few energy stocks in here that would not have been in here, say in January or February. So if we take out those, we're getting more in the level that we normally see, which is like eight or nine stocks. But right now we are getting some big integrateds. There's a lot of integrated energy companies like Exxon and Chevron with the high Zacks ranked, the number one ranks. So a couple of those are showing up. But not Exxon or Chevron. They're not here because again, this screen is so narrow and it's hard to fit all of the five of these criteria. But these 11 companies have. So as per usual, I've pulled out three stocks so we can take a look at them and see, you know, how cheap are they are. These were worth keeping on a watch list or is there some other reason they're on this list? Something bad going on in the background, even though they have the high rank and let's dive in. Okay, so the first one I've talked about it in the past. I did choose it because I knew they were on the technology side, but in kind of a more boring way. So the ticker is A, as in Adam, V as in Victor, T as in Tom. The company is called Avnet and they've been around a long time. I know I've covered them in the past because they have been cheap for forever and they've always shown up in many of these screens and I've kind of just taken a pass on them because when I've been looking around for tech stocks, they've always kind of been on the more boring side. So they are a global tech distributor and solutions provider and they've been around for 100 years. So big businesses that are building out some new office. Avnet is the one that you're going to contact and say, hey, set up this office for us with everything we need in there so that we can do xyz. So that's what they do. They go in and they make sure that the technology is working for all of their customers. But this is a relatively low margin business. So they had operating margins in the fiscal third quarter, which is their last quarter that they just reported of just 3.5% on electronic components. Now they did get a record in sales and electronic components in the third quarter. So we're still seeing some good things happening with this company even though it's got these lower margins. And the sales grew 34% year over year. And they said it was strength in markets across all regions. So I like to see that. And we're seeing an increase in the earnings with a stock like Avnet. Right now things are going well for these companies that just kind of go about their business, but the overall economy is heating up. They are in the tech side, so they are seeing stronger demand. They're also really shareholder friendly and we're seeing that with dividends and other boring things that us value investors tend to like. Right. But others in like the growth side don't care about. But a company that's been around this long, that has been this cheap and is growing at this level just kind of wants to support its shareholders. So market cap is just 7.3 billion. And again it does pay that dividend. It's A$40. It's only yielding 1.6% though, because shares are at new all time highs. I want to say these are all time highs and the shares aren't as cheap as they used to be going into this year. This year is when the shares have taken off. It's just been a slow, so little grind in a narrow trading range for the most part. But that's what I remember about Avnet. But it's now taken off because earnings are expected to rise 48.8% this year on revenue growth of 20.7%. And this is fiscal year. So this is. We're already in the third quarter. We only have one more quarter to go for this fiscal 2026 and then next year it does not drop off a cliff. We're expected to see 42.6% in earnings growth and then back to a little more normal with just 5% on the sales growth side. But this it usually is doing in the single digits when it is on the positive side on the sales growth. But the analysts are all very bullish on Avnet right now we have seen with that great quarter earnings revisions, that's how we've gotten the number two rank now. And all the estimates are higher for the fiscal year which again only has one more quarter. Three are higher for this year, but three are also higher for next year. And we're looking at 512 for this year. And again that's up 48% because they made 344 last year. And now we're looking at 730 for next year and that's up another 42% as I mentioned earlier. So the most accurate consent estimate is on track with the consensus because we only have three estimates. So they're all in agreement. Everybody's bullish. The company continues to beat. It had a big beat last quarter of $0.15, but again for a company like this, which is just kind of a steady eddy, that was a big beat. Now it does look like it has acquired someone since I last talked about it. And Farnell is its name and it does say they had a third consecutive quarter of double digit year over year sales growth at Farnell. That's different than the electronic components. They, they're parsing it out differently. And operating margin at Farnell is slightly higher at 5.2% in the third quarter versus 3.5 for the rest of the business. So that could also be what's driving everything that's happening here. It's all about the margins, right? You get a little bit more business, but if you can get those margins up and you're keeping your costs down, relatively down, then you start to see those higher earnings. So avnets looking pretty good here with the number two. So what are all the, the cheapness, the value fundamentals. So it has a pe of 17.4. So if I only screen for 15 times, it would not have fallen into this screen. So that's why we went a little bit higher to allow us to get some of these interesting plays going on out there. Right now we want cheap, but doing a screen like this with five cheapness factors is going to give us, you know, the cheapness already. We don't have to get dirt cheap to still get good quality stocks as we've seen. So I'm, I'm fine with paying a little bit more on the PE side because we're still getting the other parts of it very cheap. Price to sales is just 0.29, 0.29 for the price to sales PEG is at 0.4 because those earnings are on the rise even though the stock is at new Highs price to book is at 1.48. That's cheap. And price to cash flow 17.56. Again it does, it is shareholder friendly because it's had to be all these years. But it is interesting to see the earnings start to take off with this type of company because again I have covered it many times over the years and it's just always been like, oh, it's, it's a good quality, it's, it's distribution, but that's about it. And the stock mostly did reflect what was going on with the underlying, you know, kind of steady eddy but not real high margins there. And so year to date though, the shares like I said, have taken off to this new, I believe all time high. And wait, I have to look now, is it an all time high? It's got to be. Yes, this is an all time high. And Affnet goes way, way back on our chart on sacks.com we have it going back to 1968 on the chart and you know, so that's pretty incredible. It, it has been a winner over all those years, but not like what you would find with the Microsoft or an Amazon kind of thing until this year. And Avnet's up 76% year to date. The S&P 500 is up 9.8. That's pretty impressive. Over the last year it's similar because most of the gains have been in 2026, so just up 71% but the S&P is up 27% and to give you some bigger perspective, no, that's not really going to help me over the five years. It is also beating the S P but only because of what's happened in this year. It did have the big earnings kind of beat and surprise at how good things are going. That was in April. So the three month chart, the shares are up 33.6% versus 9.6 for the S P. And so it's capturing what is going on with this breakout that we're in. But it's still cheap and it's got all the value fundamentals. Should you be buying Avnet here on the improved business, the underlying business growth there? Maybe, but I might wait for a little bit of a pullback to be honest. It's still hot over the last month, up 12.4% versus S&P up 5% but it's pretty volatile because it's not traded the same way a lot of the popular names are. So you have some big daily swings but the trend is still higher even over the last five days. That I've, I'm looking at, it's up 5% versus the S P up 2% mainly. Anything in the tech area seems to be, you know, catching a bid here, as we know. But again, the fundamentals are there. So that's Avnet Inc. Avnet ticker, AVT and they, they're not small, they've got a 7 billion market cap. But on the distribution and solution side, pretty much they get ignored until now. So it's great to see a value stock breaking out like this and with a true classic value fundamentals. That's impressive. All right, let's go on to number two and it's nex Nexa Resources ticker N as in Nancy is an Edward X, A as an Adam and they're a major zinc producer so I knew I would have some commodities in addition to the oil on here. And they talk about how they have been in business for 65 years. They have eight operations in Brazil and Peru, three of which are smelters and five are mines, including the largest underground zinc mine in Peru and the largest zinc smelter in the Americas. It says they account for 4% of the world's zinc production and are the only producers of metallic zinc in Latin America, excluding Mexico. They also produce copper, lead, silver and gold as byproducts. And what's going on with them? How cheap are they? Let's look. So next to resources, let's see PE, very cheap, 5.39. PEG ratio 0.2. But we know it's going to be under one. Price to cash flow 4.76. It's a lot lower than Avnet. Price to sales point five eight. These are all going to be under one. So we know we're getting cheap on that. But you know, nothing here that I'm picking out is, you know, 0.99 at all. 0.58 and then price to book 1.3. So we know it's going to be cheap. That's how it made it in here. But what is happening? To give it the Zach's rank, why are we at the number one with Nexa Resources? It's got an A for value, but also an A for growth, a B for momentum and A overall VGM scores. Is this because of the gold that's underneath there or because zinc prices are surging or combination copper prices at new highs as well. So if they're doing some byproducts with the copper also should be beneficiaries there. But let's take a look at what is happening with Those estimates, we actually do have some analysts coverage on it even on the quarters. We have one estimate for the quarters because remember it's a foreign company so it's less likely to be covered even in the commodities and it less likely to be covered for the quarterly reports and more likely just for the yearly ones. But we have one estimate higher in just the last week. We're looking for 267. That is that estimate because that's the most accurate estimate is 267. That's also now the consensus. But it was at A$80 just 30 days ago. So this one estimate has really pushed up the Zach's consensus here. Otherwise three are up in the last 30 days. So it was popular or you know, analysts were bul. Bullish probably after the last earnings report and now some reason somebody's decided to get more bullish here on this, you know, recently. Let's see. I'm not sure what is actually happening with some of these, why we're getting such bullishness but I'm going to look at the press releases now to see. They did provide an update on a couple of things. Where is there. These are just updates. I want financial information. Let's see. This is all in English by the way. If you're wondering on, you know, if you can buy some of these foreign companies that are in countries that's not in English, if they're on the US exchanges they usually have price, you know their, their website usually is in English or you can change over from whatever countries, you know, whatever their languages into an English on the website. So that helps. Okay, here we go. Takes a little while to get in there. It's not under the press releases just FYI. You do have to go into the results and some of this is giving the mining results as well. But this is in the first quarter. Okay, so net revenues were up 42%. The improvement was driven by higher realized prices across our metal portfolio, most notably silver with LBMA prices up 164% year over year reflecting strong investment in central bank demand alongside geopolitical risk premiums tied to the Middle east conflict combined with stronger smelting sales volumes. So this is what we want to see. But a lot seems to be going on on the geopolitical side. I've always warned about this with the gold miners but you can see it now even with zinc miners which has some gold and silver and copper as well. So it does say these strong results were achieved against the backdrop of heavy rainfall and an illegal community blockade. At one of their sites and a shaft constraint at another one. So a lot going on with a lot of these miners and you have to keep that in mind as well. These companies really have to navigate a lot of things. So it's the silver I thought would have thought it was the gold. But silverware's trading at, you know, new highs as well in the quarter. I'm trying to find out where, you know, what percentages they have under each thing. Not seeing, okay, let me see. Copper. Copper production declined 16% year over year. So we had that going on. Silver production also declined, but it declined 19% silver production quarter over quarter. So they are seeing some production declines, but because of what's happening in the actual price of the metals, they're making up for it. So a lot going on with these mining companies, but this one is dirt cheap. Even the gold miners remain dirt cheap even though the price of gold has pulled back. And so if you're looking around for somebody that you know is seeing some good results right now and maybe you want to get out of just gold and silver and you want something that's a little bit broader, Nexa should be on your watch list for sure. And let me just see, do they pay a dividend? Some of these do, some of these don't. Some are buying back shares. It says it's paying $0.10 which is 0.7%. The shares are still trading near their all time highs. I'm not sure if this is all time. It's definitely five years. But a lot of these are at all time. A lot of the mining companies, because the underlying metals are at all time highs and they've been seeing some breakouts. So over the year to date on next, it's up 64% right now. That's a little bit under Avnet, up 76 over the last year. We're up 193%. But in the last month it's only up 1% as those prices of the metals have come down. And this trade has kind of been replaced by the tech and the AI trade over the last month or so. Unclear what will happen if the Iran war ends soon and we get, you know, some interest maybe back into the metals side. We'll see. But for now it's kind of cooled off here. That's why it's so dirt cheap on all these metrics. But also remember, in addition to the oil stocks, the metal miners are very cyclical. They'll have these big boosts when the underlying metal is high and then it goes you know, into back into the darkness. So we're getting the boost this year and maybe next year we'll see. But we are not, you know, guaranteed any of this kind of gains. Also this year, earnings expected to be up 214% on 14.6% on the sales side. That's why you've got the PEG ratio of just, you know, 0.2. But the 2027 pullback a little bit because no one knows what's going to happen. An earnings decline of 29.6% on a revenue decline of 9%. But the estimates have been raised for next year as well in the last 30 days. So that's positive. People were too pessimistic even extending these gains into next year. So a lot will happen with the earnings estimates on the metals as we move through the year for 2027 and we'll see if we're holding on to some of this. But the shares are trading near those five, five year highs and kind of just holding there. And that's interesting as well. So that's next to Resources Nexa. And then I'm going to wrap it up with kind of another commodities play here. Dow. It used to just be Dow Chemical. It's just Dow now and we know them. Chemical side, it's been a wild ride because of the war and it was both. They took a hit initially and then they saw margin expansion in March because the supply chain disruptions. So some stocks or some of their products they had they could charge more for. Some they couldn't get. There's you know, issues with the supply chain. So a lot going on with a company like Dao. People have mostly abandoned it and we're seeing, well they abandoned it initially and then year to date. However it's now up 43%. That's well beating the S&P 500 over the last year. It's underperforming the S p, it's up 20% versus S&P up about 27%. Before the Iran war it was trading at five year lows. It is off those lows now. But five years it's down 49.2% because just margins were getting hit on those, you know, lower commodity prices and just tariffs and various things were going on to really shake up a bit. So it's been on the value screens for a while. But again to get that number one rank, what's going on to give it that number one rank or number two and to get the good style scores as well, let's, let's tune in okay, so it is a number one rank with a value score of a B. And so that's a turnaround because Dow, you know has been a 4 or 5 most recently not that long ago. PE is at 14.8. So that is in the under 15 category. PEG ratio of just 0.27. Price to cash flow 11.6. Price to sales point six five and price to book 1.5. So we know these are all going to be good. But the number one rank is the surprise here and we're starting to see some big beads and a turnaround in those earnings. So how big is the turnaround? Why do we have the number one rank? We have it because somebody is raising right and this is a heavily covered company so we're going to get more coverage here. And for the full year, seven estimates are up in the last 60 days. So that's after the, the last earnings report. One is up in the last 30 days however. So that's a rogue analyst deciding they were being too conservative. And so you can really see the turnaround in just the 90 days since the start of the war where they were supposed to lose 12 cents for this year and now they're supposed to make $2.37. So that's an incredible turnaround. The most accurate estimate and that might be the increase in the last 30 days is looking for 292. That's much higher than the 237. So we'll see if it can hold at you know, these higher levels going forward for this quarter. A real big turnaround as well as the Strait of Hormuz has remains remained closed, the commodity prices have remained elevated in certain areas. So we're now looking for $0.79 for the second quarter. That's up from $0.08 just 90 days ago. So big dramatic turnaround there and they've posted three earnings beats in a row. So they were starting to turn it around but things were pretty grim on what what was happening heading into the Iran war now and now they've gotten a little bit of a reprieve and things are looking up up sales expected to be up 9.1% for the year now just based on what's happened in the last 90 days. So has the good news been all priced in here? Even though it's cheap on all these fundamentals, it is up quite a bit as I mentioned in you know, since the Iran war started. Let's look at the three month chart. Three months, Dow is hanging on to some of its gains. It's up 15% in the three months but that is outperforming the S P which is still only up 9.5 and Avnet still beating everybody up 33% and Nexa up just 4.6% as those metal prices have fallen a bit. So Dow, interesting choice here on this list but again these companies that were kind of left for dead on the commodity side and especially in like they had flat sales and performance materials and coatings, they had declines everywhere else. First quarter sales were down 6%. Remember the Iran war started at the end of February so two months had already happened. They did have March where margins improved in March they said due to the constraints in the global supply chain. So that's where they were benefiting and we'll see what happens in the second quarter. But again the global supply chain is still being impacted right now by everything going on in the Middle east two months into the second quarter now. So we'll see what this means. But the analysts are bullish and we are getting those changes in the estimates now with the cheapness still there. But Dow was dirt cheap when it was hitting those five year lows because those earnings were a bit of a value trap. I have looked at Dow in the past for value trap issues and it definitely had them, but not right now, not for this year. And we'll see what happens with next year. Again just like with next, a little too, too soon to know but the estimates are higher already for next year as well. So the analysts who know this industry are thinking a lot of these, you know, price increases on these chemicals and their other products are going to be maintained into next year. Maybe not quite as good as this year but, but not in the negative like we've been seeing. So Dow, interesting choice, Ticker D O W and it joins this list of classic value stocks. They're not AI stocks but we still did manage to get a tech name in there even if it's on the boring side of tech. Although not so boring right now. Right after a hundred years we're getting this big breakout suddenly in 2026. So let's recap the stocks again. We had Avnet ticker avt, Nexa Res, a zinc producer down in Latin America, Nexa and then we had Dow. They're global, they're, they're everywhere. Ticker D O W. We'll see how that shakes out as it goes along. But a lot of the Middle east news is probably already priced into those shares. But I'm still liking it's got the Zach's number one Rank finally, after years of kind of being in the doghouse. So keep an eye on all three of these stocks. Keep them on your short list. You know, look for pullbacks on some of these if you think they're just still too red hot on a chart basis. They are all still dirt cheap or at least cheap on a classic value basis. And it's difficult, it's difficult to get all of these criteria into one company, but these three have done it. So stick around and listen to our other podcasts as I bring you more value stocks each week. I brought you the cheapest AI stocks I could find recently. So I am still covering AI stocks because I believe that value investors should be in that AI growth trade. And if we're going to get in it, get in it as cheap as possible. So I've been trying to find you those stocks and then I'm just looking around to see, see where else is the value. Some of them that are cheap right now, some companies just don't have the sacks Rank. They are value traps. I'll be doing more on the value traps as we move along. I also just covered Big Oil, the big energy trade, the Exons and the Chevrons of the world on the Market Edge podcast. So be sure to subscribe to our YouTube channel, the regular YouTube channel, not the podcast one, to get all of the Zack's Market Edge podcasts as well. Because sometimes I do sneak in value over there and people wanted to know about the energy stocks, what was going on with them, are they cheap? Are they a buying opportunity here? Even though crude has fallen from its recent highs, I talk all about it on the Market Edge. So subscribe on our YouTube channel to both of these podcasts. Get the value investor on our podcast channel. I know many of you are subscribing over there. Click the like button. Subscribe, get the notifications. So you never miss a single one of my episodes. But the others that are also on the podcast channel, like Nina Mishra's great ETF Spotlight podcast, because a lot of is going on in the ETF world right now. So you don't want to miss a single one of our podcasts. Get them where you can get them on Apple. We're on Amazon Music, we're on Spotify. Just about anywhere you can get audio podcasts, you'll find us. But get us somewhere and I'll see you again next time with some more value stocks.
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This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice or a recommendation to buy, sell, or hold a security. Do not act or rely upon the information and advice given in this podcast without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this podcast is not intended to create, and the information contained herein does not constitute an attorney client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities company sectors or markets identified and described were or will be profitable. All information is current as of the date herein and is subject to change without notice. Any views or opinions expressed may not reflect those of Zack's investment research as a whole.