Cheap stocks are suddenly in favor. And a growing group of them, including some in the S&P 500, are actually seen putting up huge profit growth this year.
A dozen stocks in the S&P Composite 1500 Pure Value Index, including consumer discretionary firm Ford (F) energy firm Chevron (CVX) and industrials Ryder System (R), are expected to post more than 500% adjusted earnings growth in 2021, analysts say. This is based on an Investor’s Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. Only companies to post a profit in 2021 are included.
The S&P Composite 1500 Pure Value Index includes the cheapest small, mid-size and large S&P 500 companies.
Investors continue to rotate into cheap stocks of all sizes that were largely left out of the 2020 rally. Large technology stocks drove many of last year’s gains. Meanwhile, analysts are already finding companies they think will have strong fundamental growth, too.
And this comes as many of these companies in coming week will largely post big earnings drops for 2020. “The (fourth-quarter earnings) reporting period is upon us,” said Sam Stovall, chief market strategist at CFRA. “Estimates point to a 12.4% year-over-year decline in S&P 500 EPS, with seven sectors in the red, led by energy, industrials and real estate.”
Shift To Value, S&P 500 And Small Companies
Sectors and indexes are already showing a shift in the market. The “cyclical” sectors most exposed to areas of the economy that benefit most from a strong economy are rising fastest.
The Materials Select Sector SPDR ETF (XLB) is the No. 1 top-performing sector in the S&P 500 over the past 30 days. It’s up 6%. And that sector is followed by a 5.2% and 2.6% gain in the Financial Select Sector SPDR ETF (XLF) and Consumer Discretionary Select Sector SPDR (XLY) respectively. Both are topping the 1% gain of the SPDR S&P 500 ETF Trust (SPY).
Digging deeper, though, shows even more of a separation. The Vanguard Value ETF (VTV), which holds the cheapest stocks in the S&P 500, is up 1.6% in the past 30 days. That tops the S&P 500. Meanwhile, the Vanguard Small-Cap Value ETF (VBR), which holds small, cheap stocks, is up 5.3% in 30 days.
Investors clearly think some cheap stocks will bounce back. But where do analysts see profit growth to justify the bullishness?
Ford: Eyeing 2021
If you’re looking for an example of a cheap stock analysts think will bounce, it’s Ford. The struggling automaker’s stock dropped 3.5% over the past 12 months. And for good reason, Ford is expected to lose an adjusted $11 million, or 3 cents a share, in 2020.
But with that said, analysts think the company will soar back to profitability in 2021. And not by just a little. Analysts think Ford will make $4.3 billion, or $1.04 a share, in 2021. Do you know what to look at before buying Ford stock?
Good News In Industrials And Energy?
Energy and industrial companies lagged in 2020. But now, analysts think some of these companies will put up big profit growth in 2021.
Take industrial supply chain company Ryder System. The company is on pace to lose an adjusted $5 million, or 19 cents a share, in 2020. And yet, shares are up more than 20% in 12 months. Why? 2021 looks much better. Analysts think the company will make more than $200 million, or $3.83 a share in 2021.
It’s a similar situation at Chevron. Excluding all charges, the company in 2021 is seen posting a profit of $5.3 billion or $2.88 a share. That’s a dramatic improvement from the company’s expected adjusted loss of $317 million or 22 cents a share last year.
Analysts: Fastest Growing Cheap Companies
S&P 1500 companies seen posting big EPS growth in 2021
|Company||Ticker||EPS 2021 (est.)||EPS Growth 2021 (est.)||Sector||Composite Rating|
|Ford Motor||(F)||$1.04||4,136.1%||Consumer Discretionary||66|
|Universal Insurance Holdings||(UVE)||2.90||866.7%||Financials||9|
|Warrior Met Coal||(HCC)||1.70||685.7%||Materials||42|
|Urban Outfitters||(URBN)||1.90||657.1%||Consumer Discretionary||55|