This is the Value Investor podcast with Tracy Rinek, All Things Value All the Time. Welcome back value investors. I've been thinking there's probably a lot of new listeners joining the podcast recently because value is in now and you've been looking around on Apple podcast and you're like, I like to listen to some investing podcast, maybe some value investing and that's how you found us. So I'm aware that maybe not everyone realizes that this Value Investor podcast hosts, that's me, also writes a newsletter, a weekly newsletter here at Zax and it's Z-A-C-K-S in case you are finding me on Apple podcasts and don't know I'm part of Zax investment research, but I am and I do do this weekly newsletter at Zax and it's on value of course.
And if you'd like to take a look at it, that's easy to arrange. You can do a trial of our Zax Ultimate. That's the one that basically lets you see all of our newsletters. So we have newsletters that cover just about everything.
We have the growth, we have healthcare, we have tech, we have cannabis, we have alternative energy that's just launching, we have my Value Investor. I also write the Insider Trader, which is kind of a fun portfolio. That's when the Insiders at the Company buy shares of the stock, we buy the stock too, as long as it has good fundamentals of course. But that one does have a little bit of a value bent to it too because a lot of the Insiders like to buy after the stock is sold off big and so a lot of the stocks are cheap, not always but a lot of the times they are.
And so that kind of fits with my interests which are value. So I've been running the Zax Value Investor since 2011 now. It's been a long journey. It's been 11 years and it's been quite a wild ride from the time when they were debating the debt ceiling under Obama.
That's kind of when I took it over. And then we saw everything. We saw like the Eurozone crisis. There was the Plungen Energy in like 2014, 2015.
There was the Brexit, that big sell-off that happened and then it rebounded right away. Then we had obviously the pandemic and had it endure all of that. And now we're coming out of the pandemic and Value may be back in. So this could be our time.
I've said that a couple times over the last 11 years, but it is looking more likely now that Value is where it's going to be for a longer time period now. So I currently have 16 stacks in the portfolio. So it's on the smaller side. We usually are supposed to have about 15 to 20 in there, but keeping it a little bit thinner now because of the market conditions and just how volatile it is.
So our holding period is forever. But because of the pandemic, I got, it was just too volatile. We got wiped out of a bunch of our older positions. We did add quite a few during the pandemic, but some of them were a little bit more growthy.
So we owned like Pinterest in there in mode. Some of those that were like row stacks that got crushed down. I felt like there was value there. We got in those.
We did see some nice gains and then we got out. So we avoided most of this year's downturn in those more growthy names, but we have taken it down the chin with some of our holdings, even those that didn't have like the growth outlook there. But our oldest portfolio position now is from March 2020. I had to go look to see.
I knew it was a couple of years old now, but I was kind of surprised to see, hey, I bought that like right during the darkness of right when the pandemic hits. We were all in lockdown, stock market was selling off. I wanted to get into something that was cheap at the time and this particular position. I'm not going to say what it is, but it was trading around nine times and it was real boring.
Real boring area of the market. Nobody cared about and it's done real well for us because that's why we're still in it. So the commentary, as I said, comes out once a week. It's on Fridays and so that just kind of gives an overview of what's going on in the portfolio.
And so you can do the 30 day trial. Like I said, it does cost a dollar, but you can do it at zacks.com. It's Z A C K S dot com slash ultimate, which is you L T I M A T E. So Zacks.com slash ultimate.
And if you're looking at listening to this podcast like a year later, I'm recording this in November 2022, that link should still work. So come join us even if it's a year later, because I'm hoping that the value is still plugging along. In fact, I'm thinking it will be fingers crossed. So if you're still interested in value stocks in 2023 or even 2024, if you're listening to this then then still give us a look here at zacks.com slash ultimate.
Okay, speaking of the value, there is a lot going on. And I wanted to go kind of back to the basics on this podcast because I realized there are a lot of you who are new. You're finding us on Apple podcast because you're interested, maybe in doing value investing. Maybe all the growth stocks you bought really weren't working out and they're kind of blowing up and you're like, maybe I need to get out of those and I need to get into this value thing.
So what does value even mean? Value stock investing is really pretty basic. It's just stocks that are really being rejected by Wall Street. That's what I call it.
So they're out of favor for some reason or even sometimes they are actually hated. A lot of times they're considered boring because they're not popular. So when you mention them to someone, they're like, that's boring or what do I want to be in that? And that's where they get the reputation for the value.
So they're basically being ignored, nobody's buying them and they get cheaper. But what I mean by cheap doesn't necessarily mean by the price. So a lot of people get confused about that. They think, cheap means it's like $5 a share or $1 a share or 50 cents a share.
That's a cheap stack. That's a value. But that isn't. That is cheap on a price basis.
I get it. I get why it's fun to buy a $5 stock because you think, like, oh, it's at $5. All it needs to do is go to $10 and double my money. So I get it.
I've thought like that many times myself. But value investing really looks at the fundamentals to find cheap fundamentals. And what does fundamentals usually mean? It usually means earnings or at least you start there.
Earnings and then sales. So if you're looking for earnings, you want to know that you're getting those earnings cheaply. You're getting those earnings on sale. So you want to get as low on for the price of the earnings as you can.
So the most basic fundamental that value investors look at is the price to earnings, which is translated into the PE price to earnings, P over E, and people just call it the PE ratio. So it is price divided by the earnings. That's the most basic value screen you can do. Now some people hate the PE.
They're always like, Tracy, why are you screening only with PE? And in fact, I think someone complained about it in the comments on Apple podcast and podcast saying, oh, she only does these screens with PE, blah, blah. And I'm with you. I get it.
That PE is not complete. And it can be manipulated by the companies on the east side, necessarily the PE, but on the E on the earnings. And some industries, it doesn't tell you who's really cheap, just based on earnings. So for instance, on the banks, we look at price to book for the banks, mostly, and not so much the PE.
So it is not 100% the greatest thing you can use, but it is the most basic screen. If we're only going to screen for one of the fundamentals, you might as well start with the PE because it will give you some direction and somewhere to go because you know you are getting it cheap if you're getting that low PE. Now for my basic screens, you can just screen with the PE, but you're going to get a lot of stocks now because the PE's are low on a lot of companies. So if I just went to Yahoo Finance and ran some basic screen over there, which is PE, it's going to be unworkable, even if you go for a pretty low PE.
But at Zax, I can add the Zax rank and at least it's going to give me some little boost, a little catalyst there, something good going beyond just, oh, it's cheap. So what does the Zax rank do? Remember, it looks for rising earnings estimates and it's outside analysts, not Zax analysts. We grab all their data.
So after a company reports earnings, they're, you know, they beat, they raise guidance for the year, the analysts have to go in and they have to raise their outlook because they're usually below, right? If the company is raising, they have to raise two. So they go in, they put in the new numbers, and then we collect all that data and we put it into the Zax consensus. And then that is what figures the Zax ranks of number one, which is the strong buy, it is the best rank, and number twos, which are the buys, also very good.
Currently, there's 964 number ones and number twos. That's high number. I don't remember it being that close to like a thousand before. So something good is going on at 964 companies.
And it doesn't necessarily mean they're going to have earnings growth or, you know, that they're like crushing it any other way other than something is happening where the analysts are raising their earnings estimates on that company. And usually it's several of them are doing it at the same time. So they're in agreement about what's going on. So also remember the P.E.S.
at Zax looks at the forward P.E. And that's what earnings may be going into the future. So you will see on like Yahoo Finance under their P.E. They'll say TTM, and that's the trailing one.
That's actually what the company made last year. It is confirmed they did make that. So you can look at that, but we like to look at what might be going on in the like near-term future, the next couple of quarters, and that gives you a better idea of the valuation on the company. It obviously can change if a company warns on earnings and all the analysts have to cut it.
The P.E. is going to change because it's looking at the forward area, not the back. So just keep that in mind. A lot of people get confused on forward P.E.S.
versus trailing. And as long as you know which one you're using, you don't really need to know anything more than that really. But Zax uses the forward one, and that is the one that I also like to use. So what kind of P.E.
Should we be using? Well, we have used 15 and under many times on this screen when I've done just this basic value screen for this podcast. And I've done it a couple of times over the years now because I like to do just this basic one. But I knew if we did 15 because there are a lot of cheap stocks out there, it was going to give us way too many stacks, even with the Zax ranks of ones and twos.
So there's 964 of those. But even with the P.E. under 15, I just felt like we're going to get a couple hundred for sure. So I started with the P.E.
of under 10. And even that one, when I ran that screen, it gave me 217 matches. So I didn't actually go back to look to see what 15 gave, but it's a lot. So that's just too much too.
How can anyone look through a list of 217? That's too much. Did lower it to five, but five remember could mean if it's under the five, that's what I looked for, five and under. That could mean it's just too cheap, right?
A P.E. of like two or something is like, what else is going on at that company that the street is completely ignoring this company that's trading with a P.E. a price to earnings ratio of just two. So that's just hard to look at that.
There are plenty when I ran the screen when I lowered it to five. So I got 48 stocks. And that's a lot too. I can't even remember.
There's just so many of these cheap ones out there that I can't even remember another time when we had this many cheap, maybe right around when I took over the portfolio in 2011. And we did have a sell off then. So it might have been then. But that least gives us some choice.
I felt like that was a decent number. I'm certainly not lowering it even further to like a four. I could have just kept it at Zex number one, which are the tops. But I did want to include number two because it will give us just more variety than just having the number one, so more to choose from.
So I kept it at that. I looked through the list of 48 stocks. A lot of them are energies. So I originally was only going to do like three companies out of the 48.
And then I realized like the third one was an energy and the first one was an energy. But I didn't realize the third one was when I picked it because I was like, I don't know the name of this company. I've never heard of it before. Are they in chemicals?
What are they in? And then I was like, oh, they're energy again. So I kept going and I wanted to find a few that were not energy. And then some are foreign companies.
You can tell because they have a longer stack ticker. Like, you know, they'll have five letters and a lot of times those are foreign companies. Nothing wrong with investing in foreign companies. I like many of them.
I kind of stayed away from some of those for this podcast as well. So I did manage to find a couple that were not energy and I did stick with five. So what are they? So the first one is energy.
And this one, it says energy. So I knew it was some kind of energy, but I did not know this one. And it's PBF, P as in Paul, B as in boy, F as in Frank, PDF, energy. And the ticker is PBF, P as in Paul, B as in boy, F as in Frank.
And so they are an independent refiner. So this is one of the refineries there in California, Delaware, Louisiana, New Jersey, and Ohio. And of course earnings are soaring. These are the guys that President Biden is complaining about apparently because earnings are expected to be up 960% this year.
So they're expected to make $21.52, but they lost $2.50 last year. That's an incredible turnaround, right? They have a 5.8 billion market cap. The RZX number one rank.
And here's their P 2.2, 2.2, even though the shares are up and rallying. That's because of this huge gain in the E, the earnings that's not expected to stick around. So that's what you have to watch out for. Some of these may seem too good to be true.
Next year still up compared to 2021, but only expected to make $8.55. So down 60%. But even those earnings are on the rise too, because analysts have no idea on the energy side for next year. But now they're getting a little more bullish for 2023 as well.
So it's still going to be cheap. You've been looking at 2023, but you are going to see that earnings decline there. Now they did just reinstate the dividend when they just reported earnings. So you are getting a dividend with a yield of 1.7%.
So PBF must think that these earnings and they're now pretty solid free cash flows are going to stick around and that's why they reinstate the dividend. So for looking for a refiner, this one is dirt cheap and it's got the number one rank. PBF energy is the name. Okay, then switching away from energy, there was Avis budget group on this list.
ticker, CAR. I was a little reluctant to put it on here because it is one of the meme stocks. So over the last two years, these shares are up 622%, 622%. If you were messing around and trading this one year to date, it actually is up when the S&P 500 is down 21%.
It's up 8%. But it's been more muted this year, a little less on the memesters this year than what we've seen. So but what's happening with earnings, it's got to have a good sex rate, right? Even though I was reluctant to put it on here, it is a number two and three estimates were higher last week, both for 2022 earnings and 2023s.
So 2022, the numbers are there. We're all traveling. We're all renting cars. The zip car, which they do own and I've used for the last couple of years is still gouging me, I guess you could say.
Let's just say the price has gone up. It's a lot higher than it used to be. So I'm paying a lot for the zip car. So anyone using that, they're making pretty good money off of this on that side.
But that doesn't include the gasoline actually, if you rent a zip car. So they're covering that higher cost as well. And now this year, earnings expected to be 51, 73, and that's up 130% from last year at 2,249. So pretty good fundamentals.
That's why you get a PE of 4.5. So it is super cheap here on a PE basis. But next year, expected to decline back to 2489, which would be just a little bit better than 2021, but down 52% from this year. So this is similar to PBF.
A lot of these companies expected to see a decline next year, especially if the economy continues to slow here. But for now, it is still cheap at 4.5. So that's Ava's budget group, ticker CAR. But remember the stock is more volatile because there's a lot of traders in it.
Okay, the third stack is the one where I didn't know originally it was energy. And I was like, maybe this is some kind of chemicals or industrial of some kind because it's HF Sinclair. It sounds like some kind of industrial to me. But the ticker is kind of fun.
It's Dino, Dino, Dino, like dinosaur, dinosaur. Di, NO is the ticker. D isn't Dave, I, and is a Nancy, O. So that's easy.
I discovered this wasn't energy. And it's a combination of Holley Frontier and Sinclair Oil. So they combined in March 2022. And so now they're just HF Sinclair.
They do refining the midstream, big and lubricants. They have renewables and marketing. And remember, if you're looking at fossil fuel energy companies and it says they do marketing, it's not like marketing at a company like, oh, I work in marketing, not like that. Marketing in energy means the service stations.
So they have 1300 Sinclair service stations now. And that's on the marketing side. So I guess that comes from the term of like, hey, we're going to market our gasoline that we refined. And that's how that came about, I'm sure.
So they do sell specialized lubricants though. And that seems like a pretty big business as well. In the US, Canada and the Netherlands, they're in a bunch of countries. They did announce a, they had a share of purchase and then they just announced a new one in September, a new billion dollar share of purchase.
And so how cheap are these guys? PE is just 4.4. They're also a Zax number one and it's strong buy. Earnings expected to be up 846%.
This year, again, it's energy not surprising to 1438 versus just a dollar 52 last year. And next year, expect a seat decline. Like we've seen with some of these others down to 997, it's down 31% for next year, but obviously still massively above what they made in 2021, but that was before the merger. But I'm not sure if that includes both companies, they might still at a dollar 52.
Year to date, these shares are up 85%. So you might look at that and go, Tracy, that's all done. I've been hearing that a lot. Energy has done and the rally has been fierce.
But we've seen over the last two years, energy will have these mini rallies and then they'll pull back when the price of oil or natural gas comes down again. And then it rallies again. So keep that in mind if you're looking for an entry point into any of these energies. This one is HF Sinclair, D-I-N-O, and they do have a dinosaur on their website.
So it's a good way to remember them, right? Okay, then I was trying to find stuff that wasn't energy, right? I know some of you are like, energy, I'm not buying that, I refuse. So we got some other options.
So I started looking at the list going, what have I never heard of before? There were plenty. And I picked out this company, Radian Group, ticker R-D-N. And I had no idea what they do, and I had to look them up.
And they do, looks like mortgage insurance. And they're in the mortgage and real estate industry. So this area is a little rocky right now with the slowdown in mortgages and purchase applications have come way down dramatically because of the higher mortgage rates. So they did just announce right when I was looking into this in November 2022 that they were laying off 166 people in Pennsylvania.
Some of them are their headquarters because of the volatile market conditions in mortgages. How cheap is it? It is a P-E-F 4.4. It's a ZAC number one, one estimate only, and it is higher in the last seven days.
So they're expected to make 4.71 this year versus 3.15 last year. So that's up 49%. That sounds great, right? But as I just mentioned, the mortgage applications are way down and things are changing in the industry.
So analysts has them at 3.16 for next year. That's just a penny better than what they did in 2021. So basically flat compared to 2021. And shares though haven't really done much.
They've kind of been in an arrow trading range even for the last two years. So year to date they are down, but only 6%. Two years they're up, but 12.9%. So that is for the year to date better than the S&P 500 even though they're both down.
Dividend though, these kinds of companies, the mortgage insurance companies, a lot tend to pay the dividends and it is yielding 3.9%. They have a 3.1 billion market cap just in case you're wondering like, how big are they? So they're not super tiny. And so this is more of a dividend play I want to say, but just because the shares don't really go anywhere.
So you're basically collecting the income on this one. I'm not a big fan of anything with the housing right now, given where the rates are and some of the volatility in that industry. So but you never know what the company is going to be doing right when you look it up on these screens. So that's why you do your research.
And this one is a ZAC number one. It does have rising earnings estimates even in just the last week. So that's why you got to look around. But if you're interested in the mortgage area and this one is cheap, it's radiant group ticker R as in Robert D as in David and as in Nancy R D N.
And then I went to continue my quest for another stock that was not energy. So I just stayed away from anything that even remotely looked like energy or industrials. And I found one that had the word software in it. I felt like I'd be pretty safe with that one.
So it's upland software ticker you P as in Paul, Elas and Larry D as in David, you PLD. And this one is a cloud based software company and they help businesses accelerate their digital transformations. Now it only has a market cap of 205 million. So it's very small.
It is a ZAC number two, which is the buy. They do have earnings. That's how they have the PE. So they're expected to make a dollar 85 here in 2022.
But that's down 15% from last year when they made $2.18. And then next year it looks a little bit almost flat again up to just $1.89. So $1.85 this year analysts looking for $1.89 that is up, but 1.9% only. Year to date these shares are down 64% because it has software in the name.
So you can imagine what's going on. And two years they're now down 86% in two years. So maybe there is some value here. The PE is just 3.8.
It was trading around $50 a share at its peak. It's now trading under $10 at about $6.50 when I'm recording this on November 9, 2022. So I did want to include one of these software techy names because with the big sell off here in 2022, we are going to start to see some companies in this sector that's just getting really beat up and they will get cheap. But is this over?
Has it bottomed? Will it go lower? It may. I don't know.
And these are the type of companies, these small cap software companies and cloud companies that you need to really do your research on and know what's happening with the business, what is management doing during these more difficult times now? As what is there about sheet look like? Can they survive a recession? All these things.
So do your due diligence on some of these, but this is what the basic screens are designed to do, which is giving me a cheap stock with the high sex rank and then everything else is up to us to go in and find some hidden gems among these. So that one was up in software at UPLD. So you can see I did manage to find something outside of energy, but I would say there were at least 10 stocks that were energy maybe more. I didn't count them all out of 48.
That's a decent chunk, right? But energy has the right ranks right now because analysts are still raising estimates for many companies in that group. And despite the huge rally that they've had this year and last year, because the earnings are rising at a much quicker rate, they still have these really low P.E.s. I mean, these are all under five and there's a dozen of them on here under five times.
So it is a bounty of riches right now for value investors, but there are a lot of value traps and as the economy slows, some of these companies that look dirt cheap and you think, oh, this looks so good, might not be. So you really have to watch out in these stocks that are trading at under five times. See what else is going on there. Is there reason the street is ignoring them?
Although you could say they're really not ignoring energy. If the company's up 85% this year, someone's noticing it, right? But just that earnings growth is so tremendous to counter that huge rally. So keep these things in mind, but you do have to dig around a little deeper on your own when you run these screens.
I just ran the screen on Saks.com. Our basic screen are there. You can see we're up at the top. If you go to Saks.com, it says stocks, greener or something right at the top.
You can click on that or just might even say, screen or something up there. And you can see, and you can even if you don't have a premium membership or anything like that or anything, you can still go on there and use some of the basic screens. And we also have some pre-determined just basic screens on there too. I should have looked at those again, because those are available to anyone.
And I'm sure there's even some nice ones in there that would work. So maybe on the future episode, I'll be looking at that. But we are waiting right now for Warren Buffett to release what he did in the third quarter with his portfolio. We already know some of it because Berkshire Hathaway already reported earnings.
But I want to see what the 13F filings actually say he's doing. And I'm going to do a whole episode on what Buffett is doing with all this value out there. He is living it up. It is 90s.
After waiting all over a decade now on the sidelines pretty much with all that cash, he's starting to deploy it. We all want to know what is he getting into because he is the greatest value investor of all time. And he's still here to show us what he's doing. So I'm going to be doing an episode on that, among other things.
So you don't want to miss a single episode. Make sure you subscribe. And if you did find us on Apple Podcast, make sure you just subscribe to us to get all of our episodes right when they come out. And you can also get us on Spotify.
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And you can find both of them on there. And you can listen to double the stock picks every week with Zack's Market Edge and the Value Investor Podcast. But be sure to get us somewhere and I'll see you again next week with some more stocks. This material is being provided for informational purposes only.
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