4 Value Stocks to Buy Amid Tech Sell-Off and Rising Geopolitical Risks

Against this backdrop, value stocks could offer investors a compelling way to navigate heightened market uncertainty. These stocks typically trade at more modest valuations relative to their underlying fundamentals, which may limit their exposure to the sharp valuation compression that can occur when investor risk appetite weakens. Companies with established businesses, consistent cash flows, solid balance sheets and reasonable valuations could, therefore, offer an attractive combination of resilience and long-term appreciation potential.

When evaluating value stocks, one of the most effective valuation metrics is the Price to Cash Flow (P/CF) ratio. This metric measures the market price of a stock relative to the cash flow the company generates per share. A lower P/CF ratio indicates that the stock is trading at a better value, offering strong cash generation potential relative to its price. Here are four companies — Avnet, Inc. AVT, Lifetime Brands, Inc. LCUT, Arrow Electronics, Inc. ARW and Inter&Co, Inc. INTR — that boast a low P/CF ratio.

Price to Cash Flow Reveals Financial Health

Questions may arise as to why we are considering the P/CF valuation metric when the most widely used metric is Price/Earnings (or P/E). Well, what makes P/CF stand out is that operating cash flow adds back non-cash charges such as depreciation and amortization to net income, reflecting a company's financial health.

Analysts caution that a company’s earnings are subject to accounting estimates and management manipulation. However, cash flow is reliable. It is net cash flow that reveals how much money a company is actually generating and how effectively management is putting the same to use.

A positive cash flow indicates an increase in the company’s liquid assets. This gives the company the means to settle debt, shell out for its expenses, reinvest in its business, endure downturns and finally pay back its shareholders. Then again, a negative cash flow implies a decline in the company’s liquidity, which lowers its flexibility to support these moves.

What’s the Best Value Investing Strategy?

An investment decision solely based on the P/CF metric may not fetch the desired results. To identify stocks that are trading at a discount, you should expand your search criteria and also consider the price-to-book ratio, price-to-earnings ratio and price-to-sales ratio. Adding a favorable Zacks Rank and a Value Score of A or B to your search criteria should lead to even better results as these eliminate the chance of falling into a value trap.

Here are the parameters for selecting true-value stocks: 

P/CF less than or equal to X-Industry Median.

Price greater than or equal to 5: The stocks must all be trading at a minimum of $5 or higher.

Average 20-Day Volume greater than 100,000: A substantial trading volume ensures that the stock is easily tradable.

P/E using (F1) less than or equal to X-Industry Median: This parameter shortlists stocks that are trading at a discount or are equal to their peers.

P/B less than or equal to X-Industry Median: A lower P/B compared with the industry average implies that there is enough room for the stock to gain.

P/S less than or equal to X-Industry Median: The P/S ratio determines how a stock price compares to the company’s sales — the lower the ratio, the more attractive the stock is.

PEG less than 1: The ratio is used to determine a stock's value by taking the company's earnings growth into account. The PEG ratio portrays a more complete picture than the P/E ratio. A value of less than 1 indicates that the stock is undervalued and that investors need to pay less for a stock that has robust earnings growth prospects.

Zacks Rank less than or equal to 2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform irrespective of the market environment.

Value Score of less than or equal to B: Our research shows that stocks with a Style Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best upside potential.

Here are four of the 14 value stocks that qualified the screening:

Avnet, a leading global technology distributor and solutions provider, sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 13.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Avnet’s current financial-year sales and EPS indicates growth of 14.9% and 70.4%, respectively, from the year-ago period. AVT has a Value Score of B. Shares of AVT have surged 75.3% over the past year.

Lifetime Brands, a leading global provider of branded kitchenware, tableware and other products, sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 271.1%, on average. 

The Zacks Consensus Estimate for Lifetime Brands’ current financial-year sales and EPS indicates growth of 4% and 71.6%, respectively, from the year-ago period. LCUT has a Value Score of A. Shares of LCUT have soared 143.8% over the past year.

Arrow Electronics sources and engineers technology solutions for thousands of leading manufacturers and service providers. The stock sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 34.4%, on average. 

The Zacks Consensus Estimate for Arrow Electronics’ current financial-year sales and EPS indicates growth of 22.2% and 85.5%, respectively, from the year-ago period. ARW has a Value Score of A. Shares of ARW have risen 62.1% over the past year.

Inter&Co, the leading super app providing financial and digital commerce services, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 4.6%, on average.

The Zacks Consensus Estimate for INTR’s current financial-year sales and EPS indicates growth of 39% and 49.1%, respectively, from the year-ago period. INTR has a Value Score of A. Shares of INTR have declined 36.4% over the past year.

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This article originally published on Zacks Investment Research (zacks.com).

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