This is the Value Investor podcast with Tracy Rinek, all things value all the time. Welcome back value investors. Is it just me or are there a lot of dirt cheap stocks out there? Usually you see stocks with single digit P's at market declines, some kind of crazy sell-off or in bear markets, secular bear markets that last for several years.
And you see them in the secular bears because eventually investors throw in the towel and they just basically say I've had enough of taking losses and they run away. So the stocks get really cheap. An example of the cheapness in a secular bear market was in the 1970s. So by 1975 or 76 Warren Buffett has recounted that he basically could just close his eyes, open up the newspaper, put his finger down on the stock charts and pick something and it would be cheap.
Most stocks traded with single digit P's in the 1970s, but stocks were hated after that two year bad bear sell-off in the early 70s. And then mid 70s to 1980 really was kind of a malaise in stocks. You had inflation soaring, you had an easier way to make money just by buying a CD in a bank. You could get like 15 or 20% return on a bank CD.
So I'm a buying stock, even one that pays a dividend, I'm not. So 1970s were bad, a lot of single digit P's. But right now we don't have that situation, but we still have a lot of single digit P's. And the overall market, however, like the S&P 500 is still trading around like 18 to 20 times forward earnings.
But that's thanks to the big cap expensive stocks and technology in particular, most of whom have the higher P's ratios. And it includes stocks like Nvidia, I checked on that one and it's trading with a forward P of 53. But that's a little cheaper than I thought. I thought it was about 60 or 65 until I looked at the E in the PE, the earnings side, and that is rising again.
So Nvidia earnings expected to rise to 420 from $2.50 last year, that's up 68%. And revenue expected to be up 54%. So even a stock like Nvidia that's at new all-time highs that's been running over the past year in this huge rally is still somewhat for Nvidia, at least affordable with a PE of 53. So the key really to this market right now is the record earnings.
So we keep seeing the E rising even though the stocks are also rallying. And that's still making a lot of these stocks fairly attractive here on the PE basis. So I looked at this screen. Well, first I looked at the Zex number one ranked stocks, which you could do on Zex.com.
If you're a member, you can click on the link there and see all those Zex number one stocks and you can sort by value, which has the forward P's. And I just thought there were dozens, dozens of Zex, number one ranks, the strong buys. And that's a little shocking that maybe that's why we're not hearing anybody talking about valuations right now and that people are able to find these cheap stocks. But I didn't want to stick with just the number ones.
So I added the Zex number two buys and with that PE under 10. So it was 10 or under. So I did get some 10s in there. So technically I got some double digits.
But even then it gave me a lot of stocks that were ones or twos with the PE of 10 or under. It was 228 stocks. That's a lot. But again, the E is on the rise, even as the P is on the rise, but the E is rising faster.
So still getting a lot of cheap stocks on a PE basis. So what was in this list? There's a lot of cyclical names, as I would call them. There's a lot of steel names, a lot of just the metals in general because the metal prices have a rebounded.
So the E is rebounding. There's some energy. There's our usual cheap stocks of the home builders. There's our usual cheap stocks of the auto retailers.
Yeah, there's still cheap. There's still out there. There were quite a few number of banks, the small cap banks. I would say those that are like 100 million to 200 million market caps.
That's pretty darn small. A lot of those up when you get around seven or eight times. And that's interesting to me because I feel like that could be a sign that maybe we're going to see a financial rally here because the banks on a PE basis are usually always cheap. But an expensive PE for a bank would be like 11 to 15 times forward earnings on the PE.
It should also look at price to book with banks. But on the PE, 11 to 15, it's cheap on a PE basis that we usually use. But for banks, that's not that cheap. But anything under the 10 starts to get a lot cheaper, even for the banks.
So the fact that there's a lot of banks on this list indicates to me that these smaller cap banks are undervalued and with the economy reopening and expected GDP over the next two quarters above 5%. This is a good time to be the banks. Eventually the federal paper and it will raise rates and then it'll be even a better time because bank earnings will rise. So they're going to be loaning out money and they're going to be getting more for that as those rates rise.
So keep the banks in mind. Maybe I might talk about one of them today just to give you some background also on what's happening with some of the bigger banks. But look at some of those kind of smaller community banks and see what's going on with some of those. But I feel like the sign that so many are cheap finally on a PE basis even is telling us a lot about where we're going to find the value and the next area that we could see the rally.
So I got 228 stocks, as I said, and I picked out five. I wanted to do more. But I'm going to stick with the five, I think. And some of these we probably talked about in the past some we haven't, but I kind of stopped looking at the list in super detail at around six times earnings because there were so many to choose from.
So let's not write in and see what they are. Okay, the first one is an energy stack. And I didn't go by the way with the cheapest ones on this list. There were some that were trading at three, well, one, two and three times.
But as we know, something might be going on behind the scenes if it gets that cheap because they're basically giving it away. They're giving away those earnings at one times they're earnings, right? They're paying, they're almost paying you to buy it, right? So something else might be going on there or it's an industry that's super cyclical and some of that cycle might be ending soon.
I don't know. So I still stay away from this. So the first one on the list has a PE of 4.13 and it's Whiting Petroleum, ticker WLL. Yeah, I'm putting an energy on here.
They're based in Denver. They drill in the Rocky Mountains. So this is not a Permian play. They don't pay a dividend, but they have a 1.9 million market caps.
This is on the smaller side. Year to date, shares are up 89.8%. And they have sold off with the rest of the crude. Well, crude isn't really sold off that much.
As the energy stocks have sold off this summer, summer of 2021, these shares did too. So over the last three months, these shares are up only 3.9%. So might be an opportunity here on some of these energies after this little pullback and mini break that they've taken. So what do those earnings look like?
They're supposed to make 11.38 this year. We have an NA for some reason for last year. So I'm assuming they took a loss because a lot of these small energy companies had an EPS loss last year. And next year, it's like to make 11.31.
So down just seven cents and that will change. So for all those who are thinking peak oil, this is peak earnings for oil, maybe not. The analysts is not super heavily covered on the analysts side, but still they're kind of expecting more of the same for next year, but it all depends on the price of crude as we know and demand. So we'll see.
So the first one, white and petroleum, WLL with the PE of just 4.1. Second one is one of the whole builders. Several did show up on the screen. As always, MI homes is the ticker.
MHO is this one. PE of just 4.6. I have to laugh. It's like almost crazy to see a PE that low, especially given what's happening with earnings in the home builders.
So you today, these shares are up to 3%. But over the last three months, they're actually down 3.3%, even though they're all reported earnings in that time period and blew it out again. Because the analysts believe still that it's peak home buying. That over the last year, we saw everyone rush out in the COVID pandemic and everybody is bought and has nowhere to go but down.
And maybe those gross margins even are going to come down for the home builders. But home builders aren't really buying that story. They're still talking about the tight inventory, the wait lists that they have, how they're just trying to build the backlog. Lumber prices have come down and it will be reflected in earnings for next year, not this year because they do have to buy the lumber months ahead of time.
So the current decline will be priced in in 2022. But copper prices still pretty pricey. There's some other input costs that are still pricey. But the earnings on MI homes, 1383, they're supposed to make this year.
That's up 63% from last year at 8.47. But next year up another 8% at 14.94. So the analysts on MI homes, even if they believe it's peak, are telling us it's not totally peak yet. Next year may still be better.
But the street isn't really buying it. So the shares are dirt cheap. This is not a value trap. None of the home builders are value traps here.
But we will see over the next six months and heading into what will be next year's spring home buying season, what will develop in the home market. The street is a little bearish. But maybe we shouldn't be. That's MI homes.
M-H-O is the ticker. Okay, then we are going to do an auto retailer. This time I chose Group 1 auto, GPI. Even though many of them were on the list, I think this is the cheapest one that I saw.
Now I would say that Penske is one of the few that has retail locations overseas. But I was wrong. I forgot that Group 1 is also in the UK and they're in Brazil. So US, UK and Brazil for Group 1, but they do not have the logistics like Penske, which is P-A-G's, the ticker there.
They're cheap too, around six times. So Group 1, even cheaper, shares are up your date, 70%. So you have that low P-E though. And why is that?
Because the earnings are soaring. So 2021 earnings expected to be $30.85, $30.85. Last year they made 18.06. So almost a doubling.
But 2022 and also a little pessimistic, just like with housing, that peak auto will be done. Everyone will have bought whatever they need to buy. And they expected to decline to 24.80. That's declined about 20%.
So a little bit of a value trappiness there. But given the huge rebound, still a solid story. If you're looking at just even over 2020 earnings, that 24.80 is still very elevated. Year to date these shares are up 26%, even though over the last year up 91%.
Did I say they were up 70? No, they're up 91% over the last year. The up 70% is the earnings. That's what's up 70%.
So the chart looks a little choppy if you look at it over the last couple of months because again, everybody kind of thinks this trade is done. That same is true with Penske, Lithia, all of them. Can't think of the other ones. Asperi.
So is it done? I don't know. I still know some people who are looking around for cars and they're waiting until the semiconductor shortage writes itself and more cars come on a lot. So next year it could still be hot.
So keep these auto retailers in mind, especially on any kind of pullback. Then I'm going to talk about one of the banks. So this is a slightly larger bank. It's headquartered in Michigan.
It's called Flagstar. FBC is a ticker. F is in Frank. B is in Boy, C is in Cat.
Has a market cap of 2.6 billion. So it's not one of the big boys. It's not a Wells Fargo or Bank of America. But they're in Michigan as a regional bank and they have this interesting national mortgage lending business, one of the largest in the country actually.
And as we know with everybody home buying, that soared last year. So earnings soared to 952, expected this year from 839 last year. And that 839 was like double from 2019. So they still saw the doubling of earnings because everyone rushed out and either refinanced or about house.
So that mortgage lending business soared and it showed up in the earnings. But by next year, 2022 and I was expecting a big decline down to 582. Oh, that's a second year in decline. So it is expected to decline 11.9% this year down to the 839 from 952.
So they made the 952 last year on that surge in the mortgage lending. So as you can see, it's a little more difficult with this bank because of that huge mortgage lending business. 582 is still quite elevated again for the bank. But shares will be more expensive if the earnings actually decline that much.
And so it has a little bit of a value trap component to it here with that earnings decline, expected both this year and into next year. I used to own Flagstar in the Value Investor Profilio at Zacks and we bought it last year on the strength of the mortgage business. But we did take our gains and move to the sidelines even though the shares are up 22% this year because of this big decline. I don't want to see such a big decline in earnings when everybody else is still going the other way on the reopen.
So this is what I watch, but that's what's happening with some of these banks. And so you really have to drill down when you see a bank and find out what the actual business model is because just because it says like bank or on the end doesn't necessarily mean you know what they do. So keep that in mind when you're looking at any of these banks, especially even just the like local, smaller community banks, these regional banks, and then of course the big banks which also have like trading and other things going on. So that's Flagstar FBC.
Additionally, just one other thing on banks, Flagstar does pay a dividend but it's just 0.5%. So you're really not buying Flagstar for the dividend, you're buying it for the growth and apparently again that is going to be in contraction. So it's not a historical bank where you're buying it for the income like you would a lot of other regional banks. Okay, just wanted to clear that up about Flagstar.
And then our final stock is one of the retailers. Now some of these retailers have been red hot on the reopen and now we had furniture, we've had some of the really strong like brands, we had the stay at home type of retailers like the sporting equipments, and now we finally have apparel. And as everything reopened, we went to weddings and events and we went to Lala, Palooza and we needed some new outfits to go to these things. And so apparel finally catching some of this recovery momentum now, but the stacks were means are cheap, especially on the department store side.
So the one I picked out of the list was Macy's ticker M. It's only the single digit M for Macy's. It's trading at just six times. Has a market cap of 7 billion?
Year to date, these shares are up 99% so they've been soaring. But why is it so cheap, you ask? Because they're expected to make 373 this year and they lost $2.21 last year. That's a change of 268%.
Now next year, expected to see a slight decline. It's not huge, still above $3, but we're going to probably see a more normal type of business environment for the apparel retailers next year as you know, you don't won't have quite the snapback rebound in the earnings. And now these retailers have to actually run the business based on the business. So you have to decide whether or not you think Macy's is one of those retailers that will thrive after the reopen is done.
And when we're kind of back to a normal economy, there's been predictions of the death of the department stores for at least 10 years. And for all five years or almost five years I've been doing this podcast, we talked about the death of the department stores. Well, they haven't died yet. Even during a pandemic, they haven't died.
But something to keep in mind when you're looking at these dirt cheap stocks, because remember, why are they trading with PE's this low? Why is the stock market ignoring them? Well, this one Macy's is up 99%. So that's not totally ignoring.
But you do have to ask why is it so cheap and what else is going on behind the scenes? So I encourage everybody to do extra vigilance on any of these cheap stocks. And if you run a screen like this and you get 228, you're not going to research all of them. But you're going to pick out some names that hey, you know, you might be interested in and you need to check in with the companies, go to their website, go to their investor relations, listen in on those conference calls.
So you can see if there's any sudden surprises of, you know, hey, our supply chain is all bottled up and we can't get products for the holiday season to the customer. And things like that, because that is still going on out there with a lot of these companies, logistics issues, supply chain, labor and commodity costs, inflationary pressures. So you can't always just go by the numbers and hope that that's all going to be good. So yeah, there's a lot of cheap stocks out there.
These are just, you know, five of the names I picked out as I said, there's a lot of those community banks. I'm a big fan of the banks in general, even though I know you all think they're pretty boring. A lot of them are kind of nameless, faceless, right, of the smaller banks. But you may have be banking at one and you're like local town and you might be a fan.
And really the bank earnings are going to be driven by those rising rates and a good economy because the banks do well when the economy is strong. And we should be seeing that at least through 2022. Let's hope. So yeah, keep the banks on your radar.
There are also ETFs where you can invest in a basket of them. There is one that's a community bank ETF. Can't remember the ticker off the top of my head, but you can Google it and look it up. I talked about it on prior podcast.
I might have to do a banking podcast soon, right? It sounds like I do. So stay tuned for that. But for now, I'll give you the tickers of the five stocks that are dirt cheap.
They're all at PES under 10. Few have a little bit of value trap things, but the analysts might be getting it wrong on some of these, right? It might not be peak earnings. So the first one was writing petroleum doesn't look like peak earnings on the energy side yet.
They're still seeing energy, Mac gas and oil at elevated levels here. And that means strong earnings for the energy companies. So writing WLL, then we had MI homes, one of the home builders that doesn't seem to peak either. Earnings expected to be up another 8% next year, MI homes, M-H-O.
Then we had Group One automotive. GPI is the ticker. Everybody thinks it's over for the auto retailers, but I'm not so certain. I still don't have a car and maybe I might want to buy one next year.
So Group One auto GPI, then we had Flagstar. That is a regular Michigan regional bank, but it's got that big national mortgage lending. So that's why it's cheap because, again, like the home builders, are we done buying houses and refinancing? I don't know.
So the PE 5.99 Flagstar FBC and then we rounded up with Macy's. Retail is still strong, especially apparel. A lot of them are cheap. Take a look at some of the department stores, some of the niche retailers that are on the clothing side because that area seen a big rebound both in the US and globally, actually.
So don't miss out on some of those. Macy's is the one in today's podcast, ticker M. But we'll be talking about all these going on on the value side because, as I said, there's dozens of value stacks right now. It's pretty exciting to see these PE's down there at five or six times, even if a couple of them are kind of value-trappy.
Still, it's nice to see dirt cheap stocks. That's what I like to see. I like to see those low PE's, Christ of Sales ratios. Not everything is expensive right now.
So be sure to subscribe to get the value investor podcast. I'm going to be covering the banks coming up soon. I just decided to another episode on that. And we have to look into what Warren Buffett was buying in Berkshire Hathaway.
They released their TNF and nobody really cared. So I want to know why. Did they buy anything new? It sounds like they really didn't.
Maybe that's why nobody cared. But we need to check in because, obviously, Berkshire Hathaway, all things value going on over there. So you can get us on Spotify. You can get us on Amazon Music.
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And I'll be back again next week with some more value stocks.