– Zacks - (0:45) – Finding Deals Heading Into 2022: Avoiding Value Traps
- (4:30) – Tracey’s Top Stock Picks
- (26:15) – Big Takeaways: DIS, PYPL, GPS, JWN, HET, WSM
- Podcast@Zacks.com
Welcome to Episode #262 of the Value Investor Podcast.
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.
A lot of popular stocks have sold off in the last few weeks, with some of them seeing bear pullbacks of 20% or more.
Disney, PayPal, Gap, Nordstrom and Williams-Sonoma are all down double digits.
Are they cheap?
Should value investors be diving in or is this a value trap?
Definition of a Value Trap
Remember, a stock can be cheap and have classic value fundamentals such as a low P/E or PEG ratio but still not be a deal.
A true value stock has another special factor: increasing earnings for next year.
A trap usually has declining earnings so the stock really isn’t as “cheap” as it appears.
5 Stocks That Have Sold Off: Are they cheap or traps?
1. Walt Disney DIS
Disney has been a popular stock for years as many parents have bought it for their children’s portfolios over the years.
But despite being a pandemic winner thanks to its streaming service, the shares have now fallen about 18% year-to-date.
Is Disney cheap after this sell off?
Disney is trading with a forward P/E of 34.8. It’s not exactly cheap on a P/E basis.
But Disney’s earnings are expected to be up 86.9% this fiscal year, with the Zacks Consensus calling for $4.28 up from $2.29 last year.
Are Disney’s earnings expected to bounce back further from the pandemic in fiscal 2023?
Is it a deal?
2. PayPal PYPL
PayPal has been on an incredible 5-year run, with shares up 384% during that time compared to the S&P 500 up just 105%.
But in the last few months, PayPal shares have sunk and are now down 18.6% year-to-date.
Earnings are expected to jump 19% to $4.62 this year from $3.88 last year.
But even with the shares retreating, PayPal is still trading with a forward P/E of 40.
Will PayPal grow those earnings next year or is this sell-off a trap?
3. The Gap GPS
The Gap owns one of the most popular retail brands in athleisure powerhouse Athleta. But supply chain issues are hitting the retailer this holiday season.
8 estimates have been cut for fiscal 2022 in the last 30 days, pushing this year’s Zacks Consensus Estimate down to $1.35.
That’s still earnings growth of 164% as the Gap lost $2.11 last year.
Shares have tumbled and are now down 30% over the last 3 months.
However, the Gap is a true value stock, with a forward P/E of just 12.
But is it a trap in 2022?
4. Nordstrom JWN
Nordstrom recently reported a disappointing quarter and the shares plunged, falling 23.1% over the last 3 months.
7 estimates were cut for this fiscal year in the last 30 days, with one also being raised during that time. But those cuts have pushed the Zacks Consensus down to $1.28 from $1.43 just a month before.
That’s still earnings growth of 129% as Nordstrom lost $4.39 during the prior year, as the pandemic crushed department store retailers.
Nordstrom trades with a forward P/E of 15.9. This is a little high to even be considered a classic value stock.
Is Nordstrom a deal after this big sell off, or is it a trap?
5. Williams-Sonoma WSM
Williams-Sonoma is a home products retailer which owns one of the most popular furniture brands among Millennials and GenZ consumers, West Elm.
Tracey owns shares of Williams-Sonoma in her own personal portfolio.
Shares are up big in 2021, gaining 68.5% year-to-date but in the last month, they’ve fallen 18.5% from recent highs.
It is now trading with a forward P/E of just 12, which makes it a value stock by the classical definition with a P/E under 15.
Williams-Sonoma has been reporting record quarters and analysts are bullish on this year, with earnings expected to rise 57.2% year-over-year.
But what about next year?
Will the strong demand for furniture finally cool in 2022?
Is Williams Sonoma on sale or is it a trap?
Tune Into This Week’s Podcast
What else should you know about figuring out if a stock is a deal or a trap?
Tune into this week’s podcast to find out.
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Nordstrom, Inc. (JWN): Free Stock Analysis Report
The Gap, Inc. (GPS): Free Stock Analysis Report
The Walt Disney Company (DIS): Free Stock Analysis Report
WilliamsSonoma, Inc. (WSM): Free Stock Analysis Report
PayPal Holdings, Inc. (PYPL): Free Stock Analysis Report
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Zacks Investment Research
https://www.entrepreneur.com/article/403308