This is the Value Investor podcast with Tracy Rinek, all things value all the time. Welcome back value investors. So it's time to look for some value stocks here in 2021. And I wanted to just stick with the basics.
Let's do the easiest value stock screen we can. Why not? Let's keep it easy and see what develops. Because you really don't have to get that fancy when you're trying to find value stocks.
Believe it or not, you don't have to have five, six, seven things in your screen to get good value stocks. So we're just gonna keep it basic. But what does that mean? It pretty much means just the PE.
So we're gonna search for stocks with low price to earnings ratios. And remember that's price divided by the earnings. So basically all these stocks are gonna be cheap just based on earnings. And what is the criteria I usually use for cheapness on the PE?
I usually run most of the screens here on the Value Investor podcast at 15 times or less. And that's forward PE, remember. So in the latest podcast I just did, I talked about the difference between the trailing and the forward. Zach's uses the forward PE.
So it's still here in early 2021, looking at the 2021 Zach's consensus estimate for the year to tabulate that PE. Later on in the year, as we get in the second half of the year, it will start looking at 2022. But for right now it is still looking at 2021. So that's what we want.
But PE won't tell us enough. It'll give us some cheap stocks based on the earnings, but that's not really enough to get a decent screen, even though that's truly basic. So we have to add something else to it. And because we have the Zach's rank available to us, of course I'm gonna add the Zach's rank because that's really kind of our secret sauce.
And what is the Zach's rank remember? It ranks over 4,000 stocks. And those are all ones that have analysts coverage. It's in all sectors, all market caps.
And it gives one, two, three, four, five as the ranks with one being the highest. And there's not many of the Zach's number ones, which are also called strong buys. Those are a little over 200 on any given day. And then you have number twos, which are also the buys.
And then it goes down from there. Three's are holds, four is a sell, and five is a strong sell. Most companies are in number threes. And they can be in number threes for part of the quarter and move around.
The Zach's rank is tabulated every day. So the computer just runs the program and figures out who's where. And right now during earnings season, it changes very frequently because new earnings come in. The analysts upload new estimates on the companies and then it'll switch around with the rank.
So what the rank really does weed out is companies that have rising earnings estimates. The analysts have decided something good is going on there or they've been wrong. They've been too conservative about a company and they have to raise their full year earnings estimate. And as all the analysts go into raise around the same time, that is what gets you the higher Zach's rank, the strong buy.
So that's what we're searching for when we're adding on that secret sauce. We're hopefully going to get some companies with rising earnings and hopefully some earnings grow too over the last year. But that's not totally guaranteed. But hopefully we would see that.
So I'm going to add in both the number ones, strong buys, and the number two buys, just to give us a bigger universe. Because if I just went with the number ones, which you could do, you're only going to get a little over 200 stocks. And I want to see a little bit more than just the number ones. And number two's, again, are the buys.
Those should have the rising earnings estimates as well. So I'd like in that. And so I'm going to combine both. Now I took a look just to see how many stocks were in.
If I do the number ones and number twos, usually it ranges anywhere from like 800 to like 950 companies. Right now it's giving me 930 companies. So that's a lot. That's a big universe.
But I'm hoping if I add in that PE under 15, that it's going to narrow it down quite a bit. I don't know how many cheap stocks there are with good ranks right now because a lot of things are changing with the earnings estimates here. Now that we're getting longer into first quarter earnings season and earnings have been really good. And those earnings estimates are on the rise for 2021, especially with the vaccine rolling out of the pandemic.
Hopefully going to be easing. Optimism is out there right now. So that's showing up in the earnings estimates as well from the analysts. So I ran the screen and it's still giving me way too many stocks.
It's still giving me 427 stocks with this very basic screen. So that means I'm going to have to add something else to narrow it. Well, the first thing I can do is try to find even cheaper stocks. So normally I do use 15 as the PE.
But if I want to narrow to even something that has even bigger value, you can lower that. So I lowered it to 10. So 10 or less. And I still got 146 stocks.
And again, that was still a little too many for me to scan through and figure out why are they so good. It's just a little overwhelming once you get over 100 stocks. So I decided to get rid of the micro caps, any company that had less than 500 million market cap. Now, otherwise you could narrow the screen as maybe by volume, trading volume, so that you're hopefully getting something that isn't just trading with like 50,000 shares or something like that.
But I went with size. And once I added 500 million or more to get rid of those micro caps, so these would be small caps basically is what I'm looking for and above, small, mids and enlarges. I still got pretty many, but it was under 100 this time. So I got 94.
And that's when I stopped narrowing it because I can look at a list of 100 stocks and kind of see what's on there and what might be intriguing, right? I'm not going to dive into every name on it, but I'm going to be able to pick out some interesting things that are happening. So what was on this list? Some of the names are similar to what we've seen since 2020, right?
So I think almost every home builder was on this list. I don't want to say all of them because I didn't do like an actual comparison to all the home builders in our industry on ZX.com, but there were almost all of them. All the big names were mostly on this list. A lot of investment management firms.
And that's because the stock market's at all time highs again, and assets under management at these, those kinds of financial companies are at probably new highs. And so that means their earnings are looking better for 2021 as well. There were a lot of other banks and financials, which you can imagine because the banks are also starting to see a turnaround, both with mortgage revenues and because the 10-year is starting to take a little bit higher, that goes directly to earnings for the banks. There were some miners of various metals, including gold, but some other industrial miners on here.
And then there was one or two energies that I saw that popped out on there, which we haven't seen on any of these in a while because the rank has just been wrong. They've been cheap, but the rank has been real awful because those estimates were being cut most of last year in 2020. But now with WTI back above 60, you're starting to see a reversal in some of those estimates. And analysts are going to probably here in 2021 have to be raising on the energy companies.
So we're probably going to see some oil and natural gas type companies reappearing in this list. So I did go through and pick out five names. And I always like doing these screens on the podcast because, as I said at the beginning, you never know what you're going to get. And sometimes it unveils new trends that's going out there in the stock market before the stock market really notices that the trend is going on before it catches on, because that's the whole point of value, right?
It's not being, nobody's been recognizing it. It's being ignored. And that's why you get the cheap P.E.s because maybe there's a turnaround or something cyclical happening in certain sectors that the rest of the market isn't paying attention to because it's been so awful for a while. And I love in stocks like the home builders where it was not that great for many years, but suddenly in 2020 it was.
So you start to see the big turn in the estimates. And then with the agriculture, with that cycle starting up again, those are basically being ignored. Now, not many of the agriculture stocks made this list because they're just not going to have those P.E.s under 10 right now because their earnings are still kind of in the catch up mode in those categories. But some of these other ones are intriguing.
So let's dive right in. And I tried to pick different sectors to some extent so that we could have some diversity in the names. So just FYI on that. So we're not getting all home builders in this list.
But of course, I did include one. But let's lead it off with a drug stock, a drug company, Bristol Myers Squibb made the list. B.M.Y is the ticker. It's a Zacks number two buy right now.
So why did it make it? It has a P.E. of just eight. And I took a look at the P.E.s too, even though we didn't screen for that.
But that shows up on Zacks.com, like right underneath the P.E. ratio. So might as well, like look at it. The P.E.G.
here's 1.3, which is not quite value, which is a P.E.G. under one to get a true value P.E.G. But that's pretty low. So unlike in that, and what's happening with those earnings estimates?
So seven estimates have been revised higher for 2021 after the last earnings report. So they're now expected to make 743 this year versus just 644 last year in 2020. That's earnings growth at 15.4%. And for kind of these slower growing big pharma names, that's pretty good earnings growth.
You're over your earnings growth. Now, these shares have also gotten cheaper recently because over the last month, the shares are actually down 9.3%. So is this a buying opportunity in Bristol, my own swib? Maybe it seems like it's a little out of favor here and it's getting cheaper.
So keep that in mind. Also pays a dividend yielding 3.3% right now. But Bristol, my own swib is a big, big cap name, 135 billion on the market cap. So it's one of those kind of steady eddies.
You get the dividend, but 15.4% earnings growth expected this year. That's a little surprising to see. So that's an interesting drug name. And the only one that made this list of five.
I'm going to switch it over to a name I'm not familiar with. And I had to kind of dig in a little bit more and see what's going on with them. And it is Danios Corporation. Am I saying that right?
Someone will tell me I'm sure. Danios, DAC is the ticker. And they are, they say on their website, one of the largest independent owners of container ships. And they have long-term charters on the ships.
They have 65 container ships. So this is a little bit different than the container companies. So there's the ones who build and lease out the containers that come from overseas, where all the goods are shipped from China, the Philippines, Vietnam, wherever it's coming from into US ports in the containers, but they got to put them on a ship. So this is the container ship side.
This is a small cap company with a market cap of just 918 million. So it's one of those that doesn't get much play out there. That's why I've never heard of it. We only have one analyst covering it on zacks.com.
So just one estimate, not surprising because it's a small cap. But this one I actually picked out of the list of 94 stocks because it had a PE of just 2.7. And I've said before on the show, when you see a really low PE, you might not want to look into that one. You might think something is wrong there.
How could anything have a PE of 2.7? There's got to be some troubles behind the scenes for it to be that cheap on an earnings level. But this one is a zacks number one, strong buy. And so I was curious about it.
Why is it that cheap? I'm going to go investigate because I didn't believe that it could be that cheap. But it is actually. So they made $7.18 in 2020.
They are expected to make $13.59 here in 2021. That's up 89%. Then I took a look at the stock and I saw it was soaring. It's at new 52 week highs and over the last month is up 36%.
So then I got a little more intrigued, what's actually going on? So they just reported earnings on February 16th. So the one analyst hasn't had time to even update that 2021 estimate yet. But that may be revised maybe even higher.
We don't know yet. So tune in if you're checking this later on in February or March of 2021. Check those estimates again. But this is an interesting story because maybe you've heard that the containers are in such high demand now that the global economy is reopening and so many consumers are ordering things that shipping it from factories overseas.
They're just using every single container and some of the container companies now on their utilization are literally I saw one that was like 99.7% utilization in the last month in January of 2021. They're using every single container that they have to ship. So the same thing is happening with the ships side of things too. So the CEO I actually hit a right down what he said.
So I can tell you all in the earnings report he said in the fourth quarter of 2020, we witnessed the most outstanding turnaround in the container industry for as long as I can remember. And then he went on to explain it. He said the container box rates soared to all time highs due to chronic underinvestment in capacity coupled with resurgence in demand. That's what I just said.
Then the charter market rapidly strengthened and they got decade high charter rates across all vessel types. This is on the ship side. So then he goes on to say that the vessel supply will remain low because there's a two year lead time for new vessels to hit the water. So even if they were to order, give us 10 more votes right now, it's going to be at least two years for those to hit the water.
So they expect 2021 revenue to exceed 2020's by $100 million. Now what else have they been doing? They refinanced their credit facilities and now they have none due until 2025. So that's smart management.
They're using this super hot market and their cash flows to get some better terms on their debts and to make sure that they're in a good position for the next several years, which they have. So, yes, this stock really is 2.7 times future earnings, which may be going up here. Now the question is, is all the good news really priced in with this big move in the shares over the last month? Hard to say because this has kind of been a quiet story, but is now busting out.
Not all these companies, including the container companies are reporting earnings, we're starting to see just how good it is. I might wait to see if there's a pullback in these shares. If we get a little bit of cooling off here before diving in, but they are dirt cheap and those estimates are likely to go maybe even a little bit higher here. And the story looks like it's at least a 2021 story for most of the rest of the year.
But we will see that's Dan Aos Corp, DAC is the ticker. Okay, then switching over to other things we know to the home builders. So I didn't know which of the home builders stock to put on this list because I think we've covered nearly all of them or a lot of them over the last year. So, and I got this question a lot on Twitter.
Which one do I buy? That's what they always get asked. And that's a good question because they all have similar outstanding fundamentals right now. So I went with one of the big caps for this list, one of the well-known names.
They have a lot of first time buyers and they're in a lot of markets across the United States. So there's not something where like whether hits them or I don't know anything strange because they're pretty diverse across the nation. So they can't get totally hit by one event in that way. So that's why I like them.
And it's DR Horton ticker DHI. They are a sex number one strong buy right now. They have that PE under 10 of just 9.1. And I took a look at their peg too and their peg is at 0.7.
So they do have a value peg. So they both have growth and value here. Now there's a ton of analysts under your Horton. 18 of the estimates are higher in the last 30 days for this fiscal year, fiscal 2021.
So they are expected to make 8.99 this year. They only made 6.41 last year, which was an incredible year. So that's earnings growth of 40% still expected here in 2021. I took a look at the revenue here as well.
Revenue expected to be up 28.1%. Over the last month, the shares are up 12.9% as the spring home buying season has begun. And as all these companies have reported earnings, we did get a bump in the shares. But as that 10 years risen a bit, some of the home builder shares have pulled back and cooled off a bit here.
Now we were getting the story even just to start 2021 that the home builders were done. That we saw peak sales because the pandemic was going to wind down and nobody's going to need to buy a house anymore really. And that was the best it was going to be. But after we got these earnings reports, it became obvious that this hot market has entered into a new cycle, much like agriculture.
And with those millennials still buying, it's not all pandemic driven, although that was a catalyst. But this trend should be staying with us for a couple of years of young home buyers wanting to buy. So, you know, the story changed a bit. The stocks got a little bit of boost because they still remain cheap.
And I still like this play. I would be a buyer of any of the home builders on a pullback because I believe it's a multi-year play. And we're probably going to be hearing a lot about the home builders for the next couple of years on the Value Investor podcast. But for now, this one is DR Horton DHI.
Then I took a look at a couple of the banks because we've been kind of ignoring those, but the bank scenario is looking pretty good here for 2021. And it's kind of a reverse play on the home builders. As that 10 year rises, it looks even better because that goes directly to the bank earnings. So the bank I picked out of the list was PacWest Bankor, P-A-C-W is the ticker.
They're in Beverly Hills. So keep that in mind because as a regional bank in California, that means their business will be mostly in California. And so as whatever's going on economically in that state is going to impact PacWest Bankor. And I say that because in their last earnings report, they said that their focus for 2021 was on mitigating potential credit losses due to COVID-19 impacts.
So keep that in mind that that is still a looming possibility out there with a lot of these banks that some things are in forbearance, some of the loans. And so we don't really know the big impacts from COVID-19 yet on the banks with these loans. Instead, seven of the estimates are higher on PacWest Bankor in the last month and one has been raised even just in the last week here in February. And those earnings are really expected to skyrocket here in 2021.
So they made $2.10 in 2020 the pandemic here. And now this year in 2021, expected to make $3.57. That's earnings growth of 70% for a bank. So over the last month, because the bank stocks have gotten hot, PacWest is up 17.6%.
But they're up just basically back to their pre-pandemic levels here. That's why they're still cheap. They have a forward PE of 9.9. So that fits in our parameters.
They are as X number one, strong buy, because all those earnings estimates are moving up. They have a market cap of 4.3 billion. So they're not one of the small little community banks. They're a bigger regional bank.
And they do pay a dividend yielding 2.8%. So keep that in mind with the banks. But the banks, you really kind of just have to pick the region, dig down, see what their loan portfolio is involved in, things like that. And when you're choosing these more regional-type banks, community banks will be driven much more by mortgages and even just deposits.
But that's a whole other animal as well, even the much smaller banks than PankWest. But that's our PacWest Bancor. P-A-C-W is the ticker there. And then I'm going to wrap it up with another financial, kind of in a different area.
And I know I've talked about it on the podcast in the past, but it's been a little while since I took a look at it. And it's Synchrony Financial, ticker-S-Y-F. And so they basically handle credit card and loyalty programs for a lot of retailers out there. So they call it private label credit card providers.
And what that is, is so Sam's Club just launched a MasterCard reward program, and Synchrony is behind that. So they've entered into partnerships with a lot of these big retailers where they're handling their whole programs. And so that's a little bit different take than a normal bank would have, right? So this one is cheap, P-E of 8.5, PAG ratio is 0.95.
So it does have that value and growth PAG as well. And the earnings expected to soar here in 2021. So they made $2.27 in 2020, expected to make $4.36 in 2021. That's up 92% for financial.
They did have a big beat in the fourth quarter. They posted $1.24 versus 91. So things started to turn around for them in the fourth quarter. The analysts are all in agreement on this one though for 2021 with eight estimates higher.
Now some of you may remember this one because I talked about it in terms of Warren Buffett and Berkshire Hathaway because they own it. I had a double check to make sure they were still in it because they haven't selling some of their links, but they are still in synchrony and they bought it in the second quarter of 2017. They have a very small position. It's just 20 million shares or about 0.26% of the overall Berkshire portfolio, but they're still in it.
And this is X number two by, they do pay dividends yielding 2.4% and they just announced a big share repurchase program for 2021 of $1.6 billion. So they're investing back into the shareholders as well here. So synchrony financial is S-Y-F. So as you can see, I tried to pick a diverse group of names as I said because there is a lot of different value areas right now.
And there wasn't much if any tech on there, but a lot of these kind of logistics names, the containers, the this container ships company, that's an area that is basically been ignored by the Wall Street crowd for a while several years and that's busting out a lot of the transports, things like that. And that's a promising development for the global economy here as the pandemic eases because that means goods products and goods are being shipped all over the place and that's positive. So keep that in mind, the value screens can under as I said, some of these trends that are going on before everybody else is really paying attention and it's managed to do that with the housing stocks last year. And now we're starting to see some of these banks come in there with the great sex rank and now these like logistics and container type companies coming in there.
So yeah, use these value screens to uncover the next big trends because that's what they're good for. So let me recap the stocks we talked about on today's episode. So there was a drug company on their Bristol Myers Squibb, BNY and then we had the container ship company, Dan Aos, am I saying that right? Dan Aos, I think I am DAC.
Then we had the home builder, I don't know which one to choose. So I went with DR Horton, DHI. We had a regional bank with the market cap of four billion in Pac West Bank or PACW and then we had Synchrony Financial that's kind of on the credit card reward program side of things S Y F and there's a lot going on in value right now. So I have a couple of good episodes coming up.
I want to cover what Warren Buffett and Berkshire Hathaway are buying and selling and what they're doing in their portfolio here to start 2021 as well as a couple other value investors because it's good to check in and kind of see what they think of this market that's now continuing to hit all time highs. Is there value out there? I think there is because I have no trouble finding it on this basic value screen but I'm wondering what they're doing during this hot market conditions. So I'm going to be covering all of that on the future episodes here as we head into the spring.
Oh my gosh, spring is coming. It will come people up here in the north with all of our snow. We will get it. But there's a lot going on.
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