A forgotten treasure⦠[TradeSmith Daily]( Value Investors, Look No Further for Your Next Big Play
By Lucas Downey, Contributing Editor, TradeSmith Daily Thereâs a lot of valuation handwringing in the markets lately. Prophetic bears say âstocks are expensive.â But as usual, thatâs not the whole story. While some pockets of the market are pricey, a few stocks are dirt cheap… And even better, few pundits are even discussing them. So letâs drill down on one of the biggest value plays in the market: Energy stocks. As Iâll show you, not only are these stocks inexpensive, but they sport fat yields… offering a huge incentive for holding them. Iâll even include a bonus top-tier company for you to add to your watch list. Letâs dive in! RECOMMENDED LINK [Forget NVIDIA, Tesla & ChatGPT â Buy Elonâs Secret âA.I. 2.0â Project Instead](
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Warren Buffett famously taught us that price is what you pay, value is what you get. Itâs true! So often new investors focus their attention on share prices for insights, when they should be researching the fundamental drivers. One of the most reliable ways to value a company is via the price-to-earnings (P/E) ratio. This number shows how much you receive in earnings relative to the share price, expressed as a multiple. The lower the number, the more you get for what you pay. With the S&P 500 richly trading at a P/E of 20.56, the energy sector is priced at a rock-bottom valuation of 12.7. When you contrast this with the Information Technology group, the value jumps off the chart. Technology stocks sport a forward P/E of 28:
On this valuation basis alone, you could be inclined to see this area as a value trap. After all, sometimes sectors are cheap for a reason. But youâd be wrong. Hidden inside these low valuations for oil and gas stocks is the fact that they pay some the biggest dividends in the business. This is critical because we know that [dividends are responsible for 40% of the marketâs gains over the long-term](. With a sexy average yield of 3.37%, second only to Utility stocks, Energy names offer 150% more income than the S&Pâs 1.34% take. As the Fed nears interest rate cuts, you can bet that yield-hungry investors will be hunting in the energy patch for an income replacement:
Up to this point we can see that valuations are solid: check. AND weâre getting handsomely compensated for owning energy stocks: check. Now, whatâs left to do is bite into a top-notch play for your portfolio. RECOMMENDED LINK [Crypto Millionaire Names His Five Favorite Altcoins](
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[Click here to see the details]( One Top-Tier Energy Stock to Hold in 2024
Back in October, I [professed my love for Energy stocks](. I gave you the Energy Select Sector SPDR ETF (XLE) as a way to play the group. Today, weâll sift out one of the best stocks in that basket: Diamondback Energy (FANG). This West Texas Permian Basin player checks the box both fundamentally and technically. On the former, the forward P/E of FANG sits in the bottom of the bucket at 9.6. Not only that, but it pays a forward yield of 1.9%, which has been growing year after year. Those are only a couple of FANGâs attractive fundamentals. And those are just the ones you can find on the companyâs financial statements. One metric you canât find is the Quantum Score — Jason Bodnerâs composite measure of momentum, underlying company quality, and institutional money flows. On this metric, you want to buy stocks in a range between 70 and 85. This is the âGoldilocks zoneâ where conditions arenât too hot or too cold — an excellent entry point. Sizing the company up with the Quantum Score, it spits out a rank of 82.8 for FANG. Included is a juicy 75 fundamental score, which is top notch:
And it gets better. The technical action mimics the fundamental drivers. The Quantum Score includes a very healthy 88% technical score. That tells you investors have been rewarded for holding this high-quality company. One look at the one-year chart of FANG showcases this beautifully. Diamondback has nearly doubled the S&P 500, returning a dividend-reinvested gain of +62% vs. +33% for the market:
So there you have it. Valuations and dividend yield make energy uber attractive right now. And value investing isnât down and out like many proclaim… Many of the best value stocks are actually crushing the S&P 500. Consider sinking your teeth in Diamondback (FANG) as a way to get solid value in a richly elevated stock market. Finally, this post illustrates the power that data provides to your portfolio. If youâre looking for other top-ranking Energy plays — look no further than a TradeSmith subscription. [TradeSmith Investment Report]( authored by my good friend and business partner Jason Bodner, is what Iâd recommend first. It uses the same Quantum Score I just showed you to [uncover high-quality mid-cap growth stocks across all market sectors](. Out of 18 positions Jasonâs built up over the past year, all but three are in the green… with the biggest gain at 75% and the biggest loss at a measly -2.3%. This is a robust, diversified, low-risk portfolio that investors of all experience levels and wealth can take advantage of. [Learn how it works, and why you need to get involved before the Fed begins cutting rates, right here.]( Regards, Lucas Downey
Contributing Editor, TradeSmith Daily P.S. If you havenât already, I highly encourage you to [click here and automatically register for a free live trading series we just debuted](. Every day at 11 a.m. Eastern, 25-year options trading expert Jonathan Rose will share his best trade idea, and his full due diligence behind it, in just 15 minutes. And heâs sharing these ideas live, during trading hours, so you know youâre getting the timeliest insights. [Register right here with one click, and youâll get the instructions to attend the next free session at 11 a.m. today.]( Get Instant Access
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