Buy These 5 Stocks Low-To-Sell For Strong Returns
IInvesting in stocks after analyzing the valuation metrics is generally considered to be one of the best practices. When considering valuation metrics, the price/earnings ratio has always been the obvious choice. Indeed, income-based calculations are easy and convenient. However, the price-to-sales ratio has become a handy tool for determining the value of stocks that are incurring losses or are in an early development cycle, generating little or no profit.
What is the price to sales ratio?
As a loss-making company with a negative price-to-earnings ratio falls out of favor with investors, its price-to-sales ratio could indicate the company’s hidden strength. This undervalued ratio is also used to identify a recovery situation or to ensure that a company’s growth is not overvalued.
A stock’s price-to-sales ratio reflects how much investors pay for every dollar of revenue a company generates.
If the price-to-sales ratio is 1, investors pay $1 for every $1 of revenue the company generates. So, a stock with a price-to-sell ratio of less than 1 is a good deal, because investors have to pay less than a dollar for a dollar.
Thus, a stock with a lower price-to-sales ratio is a more suitable investment than a stock with a high price-to-sales ratio.
Sonoco Co products. SON, Bookmark Jewelers GIS, The Mosaic Company MOS, Ryder system R and Cognizant technology solutions CTSHs are stocks with a low price-to-sell ratio and the potential to offer higher returns.
The price-to-sales ratio is often preferred over the price-to-earnings ratio because companies can manipulate their earnings using various accounting measures. However, sales are more difficult to manipulate and are relatively reliable.
However, keep in mind that a company with high debt and a low price-to-sales ratio is not an ideal choice. The high level of debt will have to be repaid at some point, which will lead to new equity issues, an increase in market capitalization and, ultimately, a higher price-to-sales ratio.
In any case, the price-to-sales ratio used in isolation cannot do the trick. Other ratios like price/earnings, price/book and debt/equity should also be analyzed before making an investment decision.
Selling price lower than the median selling price for its industry: The lower the price to sales ratio, the better.
Price/earnings ratio using the F(1) estimate below the median price/earnings ratio for its industry: The lower, the better.
Price to Book (Common Equity) lower than the median Price to Book for its industry: It is another parameter to ensure the value function of a stock.
Debt-to-equity (most recent) below median debt-to-equity for its industry: A company with less debt should have a stable price-to-sales ratio.
Current price greater than or equal to $5: Stocks must trade at a minimum of $5 or more.
Zacks rating less than or equal to #2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform regardless of the market environment.
Value rating less than or equal to B: Our research shows that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best opportunities in the value investing space.
Here are the five of the 30 actions that qualified the screening:
sonoco is a leading provider of consumer packaging, industrial products, protective packaging and packaging supply chain services. The company manufactures cardboard, mainly from recycled materials, both for internal use and for sale on the open market.
Sonoco operates through two segments: consumer packaging and industrial paper packaging. Due to its geographical location and the competitive nature of its activities, the company is constantly seeking the most cost-effective means and structure to serve its customers and respond to fundamental changes in its markets. The stock currently has a Value Score of B and a Zacks Rank #2. It has a long-term earnings growth rate of 5%.
Bookmark Jewelers is a retailer of diamond jewelry, watches and other products. The company operates in the United States, Canada, United Kingdom, Republic of Ireland and the Channel Islands. Signet is often considered the premier diamond jewelry retailer.
Signet’s Inspiring Brilliance strategy focuses on expanding major banners, increasing service revenues, expanding accessible luxury and value segments, and accelerating digital commerce. SIG currently has a Value Score of A and a Zacks Rank #1. Its long-term earnings growth rate is 8%.
Mosaic is a major producer and marketer of concentrated phosphate and potash for the global agricultural industry. It was formed through the combination of the fertilizer businesses of agribusiness giant Cargill Incorporated and IMC Global Inc. Mosaic is the world’s largest integrated phosphate producer and is also among the top four potash producers in the world.
MOS serves customers in 40 countries. It accounts for about 13% of the world’s annual phosphate production and about 11% of the world’s annual potash production. The company currently has a Zacks #1 ranking and a value score of B. Mosaic has a 3-5 year EPS growth rate of 7%. You can see the full list of today’s Zacks #1 Rank stocks here.
Based in Florida Ryder system is recognized as one of the world’s leading providers of integrated logistics and transportation solutions. Ryder’s customers range from small businesses to large international corporations. They come from a wide variety of industries, the most important of which are automotive, electronics, transportation, groceries, wood and wood products, restaurants and furniture.
Ryder is taking advantage of improving economic and freight conditions in the United States. The title currently has a Value Score of A and a Zacks Rank #1.
Competent is a leading professional services company. It offers digital services and solutions, consulting, application development, system integration, application testing, application maintenance, infrastructure services and business process services.
The Teaneck, New Jersey-based company focuses its investments on four key areas of digital: IoT, AI, experience-driven software engineering and cloud. CTSH currently has a Value Score of B and a Zacks Rank #2. Its long-term earnings growth rate is 12%.
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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in the options mentioned herein. An affiliated investment advisory firm may hold or have shorted securities and/or hold long and/or short positions in options mentioned herein.
Disclosure: Information on the performance of Zacks portfolios and strategies is available at: https://www.zacks.com/performance.
5 shares ready to double
Each was handpicked by a Zacks expert as the #1 preferred stock to earn +100% or more in 2021. Previous recommendations have skyrocketed +143.0%, +175.9%, + 498.3% and +673.0%.
Most of the stocks in this report fly under the radar on Wall Street, which provides a great opportunity to get in on the ground floor.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.