This is the Value Investor podcast with Tracy Rinek, All Things Value All the Time. Welcome back value investors. So it's time to find some top-ranked cheap stocks. I've gone on and on about the banks in recent weeks, so this show won't include any banks.
I know some of you got to be happy about that, right? Like Ray, no banks, that's boring. It also won't include any insurance companies, even though I do like some of them right now too, and some of them are very cheap, but no insurance either. But it will include Zex number one strong buy stocks.
Now just a refresher on what the Zex rank is. It's a short-term recommendation, and it's only supposed to last one to three months. It can change basically almost daily because it's based on changes that analysts are making to their earnings estimates. And it's not Zex analysts, it's outside of Zex.
They just send us the data and we put it all together into the Zex rank. So it could be someone from Goldman, Bank of America, JP Morgan, wherever that analyst works, that broke-ridge, then we're taking their data and their changes to those earnings estimates. Now, when do those changes usually happen, usually during earnings season? So that's when you see the most changes in the Zex rank.
So a company will report and they'll say, things are awesome, everything's going good, we're raising our guidance for this year. And right now, most companies are not yet giving guidance for 2023. They might kind of be talking about it, but not yet putting it out for the most part. So we're mainly still getting 2022.
So you might get some changes there, or they might just hint at things might be better in 2023 than they were thinking they were going to be to give some guidance to the analysts. And so those analysts all go into their estimates and into their models for that company, and they start revising their estimates higher. And that's when you get the changes into the Zex rank. So why do we care about those changes?
What makes changes to earnings estimates so important? And why even have the Zex rank? Because our data has shown, going back several decades now, that when all the analysts go in and they're all raising at the same time, something good is usually going on there, right? Like somebody's raising guidance or saying things are going to be far better than what they thought they were.
The business is going much better than expected. Something good is happening. And when all those analysts are going in there and they're raising all at the same time. Now, you can also say something bad might be happening when they're all going in there and cutting at the same time as well.
That gets you the number five strong sell. So it goes both ways on both sides. But the number ones the strong buys are when all those analysts are like, wow, we're behind the curve. We need to raise our estimates because things are looking much better.
And that usually means something good is going on at the company. And that usually means something good for the stock price, not always. But hopefully, so that's why we pay attention to it. And that makes sense, right?
That if they're raising guidance, I might want to be interested in that company because something good is going on there. And we're seeing a lot of different things happening with the earnings estimates right now in this third quarter earnings season because many companies are actually cutting guidance and not raising it with these type of economic conditions and the slowing of the global economy. That's happening. The Fed continues to raise their interest rates and that's tightening the money supply.
So we're seeing a lot more cutting or warnings about what might be coming down into 2023 than we are raising. So right now, looking at the ZEX number one strong buys is maybe an even more interesting thing to do than it normally would be because these are companies that are seeing their earnings estimates being raised. And why is that? What is happening at these companies right now?
At the end of 2022, that these analysts feel that they were too pessimistic and maybe in some cases they are getting bullish on these particular companies. So I used a screen with the ZEX number ones. Right now, that's about 250 stocks, which is a little bit on the high side. Usually it's like 220 or so, but right now about 250 are the number one ranks.
And then this one just had the basic screen, a PE under 20. And that's forward PE, not the trailing. So it's looking forward into 2023 now to get the cheapness. And that's what we want to do.
We're almost at the end of 2022. I don't care about 2022. I don't care about last year, which was a good year for every company. I care about what may go on next year.
Of course, that is just the analysts with their estimates. That's the best of meeting what may go on for next year, but we like to use forward P here at ZEX because it's really telling you what may come into being. And then it looked at price to sales, one of my favorite value ratios. And that is under one.
So remember what price to sales is? It's you are getting the sales. If it's under one, you're getting price divided by the sales. And that would mean, say, if it's .7, that means you're paying $0.70 for every dollar of that company's sales.
So it would be, say, Uber had a price to sales under one. I don't think it does, but if it did, then say Uber, if they had a price to sales ratio of .5, we are paying $0.50 for every dollar that Uber is making in sales. And that would be on sale, right? That would be an opportunity, right?
That's why we like to use it as a value investors. Also a lot of people like to use the price to sales ratio versus the PE because sales are hard to fudge. You either have them or you don't. You either had that revenue coming in because you sold a certain number of products or whatever it is.
You're not advertising however you're making your sales or you didn't. Earnings, you can kind of see charges. You can have things that happen in that quarter where a few cents here, a few cents there can kind of change and earnings outlook, but sales, it's a lot harder to fudge that either. Again, have them or you don't.
So this was a kind of a basic screen and it did give me 33 matches. Now, remember when we used to run this a couple of years ago or even just last year, I would run this one and it would maybe give me like 15 stocks. So 33 is quite a lot, but we all know that there are a lot of value stocks out there and apparently a lot with the Zax Rank of number one now. And so as usual, I pulled out five names to take another look at.
Again, there's no banks and no insurance companies. Actually no home builders either. You might be interested in that one because the home builders are one of the lowest of the Zax Rank right now. On industries, we also rank industries, not just the stocks, but we do have the Zax Rank for industries and the home builders are in the bottom 1%, which I don't even recall seeing a group that I paying attention to that low down.
Obviously, someone is always at the bottom 1% and I think it was like 247 out of the 250 industries that Zax tracks. But I was noticing it on the home builders. I just wrote up one for the bear of the day. It is a number five.
It was MDC holdings ticker MDC. I guess you're interested. All the home builders are reporting earnings right now or many of them. And next year is going lower.
So the Zax Rank is in play there. All the analysts are cutting estimates for next year as the housing market has basically slowed dramatically, fawn off a cliff. Their sales are not completely halted, but are down significantly. Cancellations are up.
So they're going to deliver their backlogs on the home builders and that's going to keep revenue and earnings high for the next quarter or two. But eventually that backlog is going to decline because the sales are declining and earnings are going to fall again. Margins may fall as well, but those are holding up, but that's always the later thing to go is on the margin side. So home builders, many of them, fours or fives here, the cells and the strong cells.
And that's a good indicator, actually, a good example of how this X Rank works both on the upside and on the downside. And by the way, a lot of banks are Zax number one ranks right now, quite a few because they're in the better side of the rate increases, right, where their net interest margin is rising. That means earnings are rising for many, not all of them, but many of them. And so their analysts are revising their estimates higher on the banks.
So the tail of two different sides there and being depicted right now, this earnings season in the Zax Rank system. So that's why I like the rank. It does show these trends and these patterns. And so this podcast also showing some trends and patterns with the value stocks and who has that number one rank now.
So let's dive right in. What are these stocks? Okay, the first one, I've talked about this one before, but it's been a little while since we've discussed it, Bungee, ticker BG. This is on the food ingredient side.
I'm also going to have, coming up next, Archer Daniels Midland ADM also on the food ingredient side. So you can see a pattern here. The variance very strong right now. So Bungee will start with them.
PE is 7.4. So dirt cheap price to sales, just 0.2 year to date. These shares are up 7.2%, but they have come way down off of their spike when the Ukraine war started because remember everybody was concerned about food, sunflower oil is one of the big products in Ukraine along with grain. And so the panic was in.
These shares also shot up and then they've come back down, but they're on the move higher again because they just reported earnings. Things look better than anticipated. So again, they're up only 7.2%, but you got that low PE. The analysts were too pessimistic.
They were being conservative going into the earnings report. Earnings for 2023 for Bungee are expected to decline, but they're coming off of like, you know, really high levels here in 2022 expected to decline 15%. So you're thinking, oh, that's a value trap or, oh, why is it number one? Well, three estimates are all higher in the last week since they reported earnings for 2023 because the analysts were just too pessimistic about next year.
So it's not going to be quite as hot, at least not yet for next year, but still strong. They were too conservative, so they had to raise. That's where you're getting the number one rank and you still have that dirt cheap PE and you do get a dividend with Bungee yielding 2.5%. The market for many of these food ingredients remains very tight.
So I still like the food companies here and Bungee is one of the top in that group. The second one that I already mentioned, Archer Daniels Midland ADM is the ticker. I own ADM in sex value investor portfolio. We've owned it a couple of years now.
We've been kind of head of a patient. It too spiked during the Ukraine war and came back down, but it's spiking up big again. So the last year, the year to date, these shares are at 43.7% and they're pressuring the 52 week high now, could break out here. Earnings also expected to be down for next year, down 14.7%, but like Bungee analysts were too pessimistic.
It's in the same industry. So they all were just being cautious about next year and three estimates are also higher on ADM in the last week. PE is a lot higher for ADM. So the street is liking this one a little bit more.
So you're going to pay a little bit more to get it, but still cheap with a PE of 13.4. Price to sale is 0.5. And they too pay a dividend, not quite as good as Bungee at 1.7%. So again, food ingredients that is bent a hot area all year in 2022.
I still like it for 2023 and these shares are still cheap and the estimates are going up in the right direction, even though it has a little bit of trappiness value, trappiness for 2023, but shares are still cheap. It's not like you're buying it at 20 times and then earnings are going to decline significantly. So we're getting it at a good price and I like both of these stocks. Okay, turning away from food, we're going to look at furniture surprise.
So the stock that made the list is Ethan Allen ticker E as an Edward T as in Tom D as in David. They had a change their ticker member used to be ETH. They changed it because that is a cryptocurrency ticker. And so they got tired of being like lumped in.
There'd be all these like crypto traders on their threads on like stock to it and like other places with all of their cryptocurrency stuff. And finally Ethan Allen's like, enough, we're switching it. So it's now E TD as in David. But Ethan Allen, I checked into this one because as money of you know, I do follow the furniture retailers.
I've never owned Ethan Allen. It was for a while in our income investor portfolio here at SACS because Ethan Allen pays a really nice dividend right now. It's yielding 4.9%. But they have paid a special dividend the last couple of years with business so good.
So they've been really paying it back out to shareholders. And an interesting thing about Ethan Allen is it has no debt. So any of this money, this free cash flow coming in, they're just paying it back out to the shareholders. They've been in business 90 years.
They make most of their products in North America now, most of their manufacturing. It's 75% of their products are made in North America. So if you were looking for a play that's not in Asia at all to deal with supply chain issues over there, then maybe Ethan Allen is one of those. And this did give them some advantage when there was supply chain bottlenecks and things.
But as you might expect, because housing is slowing and the consumer is slowing, orders are slowing. So in this last quarter, yes, they just reported it was fiscal first quarter of 2023. Sales were still up 17.7%. But they had high backlog orders, most similar to what the home builders have.
They had the backlog. They have to make the furniture at their manufacturing facilities. So the buyer might not get it for two or three months, maybe even a little longer, depending on how bad the supply chain issues are. And so then those sales come in.
But those orders going forward are slowing. Everyone is seeing this in the furniture industry. It's not unusual. And so taking a look at the estimates for fiscal 2023, they're expected to be down 9.9%.
So they just reported first quarter. So that's this year now. And then 2024, which is almost another year away, is expected to be down 15%. But two estimates are up for both years in the last week since they reported earnings.
Because again, the analysts are human, like all of us, and they were getting pessimistic too. As housing was slowing, as the economy is slowing, the consumer is slowing, they already bought all their outdoor furniture during the pandemic, how much more do they need? Then everybody expected it to really see a dramatic slowdown. But it's not going to be quite that bad.
So even for this fiscal year, in the last week since they reported earnings, this estimate is up to $3.54 from $2.95. That's a pretty dramatic increase. The analysts were way too pessimistic. And then even for the following year, which again is well over a year away, it's expected to be at $3 versus $2.70, where it was before they reported earnings and reassured the analysts a bit.
Of course, as the economy continues to slow, this can all change. But again, I like Ethan Allen because they don't have the debt. And they've always been pretty conservative in their business model. What does the valuations look like?
PE is just 7.4. Price to sales is 0.8. And again, they have that dividend yielding 4.9% right now. Year to date, these shares are down 1.4%.
And they're up to 6% over the last year. So you can kind of see they haven't really been doing anything. If you go in there and look at the chart, they're just kind of like trading in a narrow trading range, a little volatile up and down. The street doesn't pay that much attention to Ethan Allen, to be honest.
And so that can get a little frustrating, especially in a real bull market because it's not going anywhere when Amazon is doubling. So you're like, why am I owning this? But in this type of market where it might be down or going sideways, you are getting that big dividend yield. And so if you're looking for income, this might be an area.
But I do caution that as they kind of continue to slow, we could have some surprises with the furniture retailers to the downside still that they still may be to come that in 2023. If there's a recession, the consumer pulls back even further, then you could see further decline here in the earnings outlook and people will sell off the stock when that happens. So keep all those things in mind. I did take a look at Havertees, ticker HVT.
It did not make our list. It just reported earnings as well. So maybe that's why it hasn't been on there yet. But their quarter was also much better than I anticipated given the housing market slowdown.
But they too are seeing a slowing in the orders. So keep that in mind with all of these furniture retailers. It's not doom and gloom with them, not yet. And maybe it never will get that bad, but you may see further decline to the downside on these shares.
So keep that in mind, Ethan Allen, ETD. Then we are going to do an energy one, but not my usual. This is one I never heard of before. It's called Next-tier Oil Field Services.
And that's N-E-X-T-I-E-R, Next-tier. And the ticker is N as a Nancy. E is an Edward X is an X-ray. And they call themselves an integrated land-based completions company.
They're in Houston. They've been around a while. They are transitioning to natural gas power, which they've said in this last quarterly report and in the earnings presentation that lowers CO2 emissions by 30% compared to diesel. And so they are really going all in on trying to do as much ESG as possible here.
But Oil Field Services is finally surging as there's going to be more drilling. These companies are the ones that help the producers get it out of the ground. And so earnings are way up this year and expected to be next year. So this is not a case of some of the other ones we just saw where earnings are expected to decline.
So for 2022 earnings up 425% and then 2023 up another 57%. To our higher for next year, none are lower. Expect to see $2.21 up from $2.10. Now here's one of the catches.
To date, these shares are up 188%. Who says nobody's making any money out there this year? Someone is if they bought any X earlier this year, but it's still cheap because that huge earnings momentum higher. So PE of 7.2 price to sales ratio of 0.86.
So a little bit higher price to sales, but still under one. So we're still getting a deal on it and really low PE because it's surging. Right? 2.5 billion market caps.
So it is on the smaller side. That's probably why I haven't heard of it. They said they have no term loan maturities until 2025. And they do have a plan to return cash to shareholders.
So through the end of 2023, they're going to return 50% of that free cash flow back to shareholders. And right now they're doing a share buyback plan of $250 million, which will be about 9% of the market cap. But they're going to evaluate that as it goes along. It's still going to be 50%.
So they may maybe do a special dividend in there or raise the share buyback if things continue to improve significantly as they are looking right now. So I like the oil services. I like the producers. Everything in oil is where the free cash flows are, where the earnings growth is right now, and you're getting it cheap here at just seven times.
Also remember when you're going into Dig a Little Deeper, so it's one thing to run a screen like I just did for this episode. But when I went into look at NEX, I just went to Yahoo Finance to see if they paid a dividend and it said NA. So they do not. And I was like, oh, they're not paying a dividend.
But knowing what I know about the energy market right now and these energy companies, I thought I should take a look on the website and see what they are doing. Maybe they are announced a dividend or, you know, I didn't know what they were doing. So then I had to dig a little bit deeper. I went into that earnings presentation that they attached from this last earnings call that just happened.
And there was the whole outline of what their strategy is to return money to shareholders. So this is like a lesson that I sometimes learn the hard way. Don't always rely on what the dividend is on any financial website, especially right now with some of these energy companies or some specialty chemical companies like the Lithium plays where they are paying out special dividends or even Ethan Allen. They paid out a special dividend too.
And it might not show up in that dividend yield that you see on Yahoo Finance or on ZACs.com. So dig deeper people. Don't just rely on the screen. But number four stack is next to your oil field services and EX is a ticker.
And then I'm finishing it up with a solar play. They are out of China. I'm not big into the Chinese stocks as you know, but it's on the list. And I haven't covered anything in solar in a while.
It's Jinko solar ticker JKS. They've been around since 2006. Everybody kind of knows them if you've been in solar. So GE right now is just 13.1 price to sales is 0.2.
They do have the ZACs number one rank obviously, but we only have one estimate on them. So if that one analyst is raising, then the odds are they're going to have a higher rank. And that is what's happening. One is higher recently, but earnings expected to be up 115% in 2022 and another 68% in 2023.
Yahoo Finance says no dividend, but I don't know because I did not dig deeper into this one. But many Chinese companies do not pay dividends. So I'm not going to be surprised if that is the case that there's no dividend. Year to date these shares are up 5.5%.
So not really going anywhere, but that is outperforming the S&P 500, which is up or down, I'm sorry, down 18% or so by the time I'm recording this in November 2022. So the solar side is interesting and it's interesting to JKS to pose it next to the oil stock that I just talked about, the services side, because both of these could be interesting plays here going into 2023 and 2024. And as always, you want to be sure to do your own research on any stock that you do a screen on as I just mentioned, because you might find some interesting things once you start digging around. It's not just about the cheapness of the stack, because again, remember as value investors, there usually is some reason why it's cheap.
There is some reason why some of the home builders are trading only at three times earnings right now. You might be like, that's insane, but if those earnings are going to decline 50% next year or maybe even more, then maybe it's not quite as cheap as you might think, right? So you really need to listen in on the conference calls. Check out the websites and what they're putting out for earnings and any other kind of information you can get if there's good analyst coverage on a company, make sure you're trying to tune in with what they're doing.
And some of these have more than others, but a lot of value stocks are on the smaller side or just in areas where there isn't as much coverage because tech has taken all the air out of the room, right? So you'll get a tech stock with six to 10 analysts on it, and you'll get a prominent food company with maybe three to five analysts on it on zacks.com at least. So keep that in mind too, that sometimes it is hard to get information on some of these smaller companies and especially value, but dig deep, get in there and try to find out as much as you can because you might be surprised that it's more than just what is going on. But the zacks rank should hopefully give you a starting point.
That's why I like to use it in these screens because something is going on that these estimates are all being raised for these companies, mostly these companies just reported earnings. So the analysts were too pessimistic and they're raising now with some of these and it might be helpful to go in and tune in as to why that is the case. Why are they doing better than expected? Because that's where you find some hidden gems, right?
Some hidden cheap gems in this case. So let me recap the stocks we talked about in case you missed those tickers. So on the food ingredient side, there was bungee ticker, B is in boy, G is in George, then Archer Daniels Midland, ADM, the supermarket to the world. If you've seen those ads from forever ago, ADM is their ticker, then we had Ethan Allen on furniture surprise that they got the number one rank, but they do.
And the ticker is E.T. D is in David, E is in Edward, T is in Tom, D is in David, then we did have oil side and energy, but it was on the services, they're researching now and those estimates are looking up for sure. And then one is next tier oil field services ticker, NEX. And then we're wrapping it up with a solar stack.
We haven't talked about that in a while, but the earnings are looking up there as well. And that ticker is JKS for Jinko Solar. And as always, you want to be sure to subscribe because you never know what I'm going to be talking about on the value investor every week. There's plenty of value out there.
It's like a riches. It's crazy. And don't forget coming up, we're going to get the next quarterly update from Berkshire Hathaway. Were they buying and selling in the third quarter?
We're about to find out in just a couple weeks here. So be sure to subscribe or get us somewhere. You can get us on Apple Podcasts. You can get us on Amazon.
We're on Spotify. And if you're on YouTube and you like to listen to podcasts on YouTube, you can find us on Zax Podcast Page. We have a whole podcast page over on YouTube. You can subscribe there and get all of our podcasts.
Or you can also get us on the just Zax regular video page, which is Zax Investment Research, or go to zax.com slash YouTube to find our YouTube page. But we're everywhere. Be sure to get us somewhere and I'll see you again next week with some more value stacks.