Through nearly four months of 2012, the SPDR S&P 500 ETF (ARCA:SPY) is up 10.5% and within striking distance of a new multi-year high. During the same timeframe, the Vanguard Value ETF (ARCA:VTV) is up 7.5%, lagging its more diversified peer.
The value portion of the large-cap asset class has lagged growth in 2012 as investors look for "riskier" stocks and ETFs during the current bull cycle. It is not at all surprising for the value stocks to lag the overall market when investors are seeking risk. What may be a surprise is that there are individual stocks in the market that are considered value plays and are poised to outperform even if the risk-on trade remains.
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The composition of VTV include over 400 large-cap value stocks based in the U.S. with a heavy concentration on the financials. The top three holdings are non-financials, and are names most investors recognize: Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX), and General Electric (NYSE:GE). The ETF charges an expense ratio of 0.10% and has a current SEC yield of 2.7%.
The one main difference between VTV and the next four stocks is that the ETF is extremely diverse and focuses many of the mega-cap stocks that tend to move closely with the market. The stocks will be considered riskier due to the lack of concentration, however they have the ability to move with or without the market. Before you invest, make sure you understand the differences between "small cap" and "big cap" stocks.
Chicago Bridge & Iron Company (NYSE:CBI) is an engineering, procurement and construction firm that focuses on the energy and natural resources industries. The stock trades with a PEG ratio of 0.88 and pays a dividend of 0.4%. The company recently reported quarterly earnings that saw revenue increase by 26% and net income rise by 18%. The stock is a value play that has a bullish chart, as well as ties to two booming niche energy sectors: oil sands and LNG.
AMERCO (Nasdaq:UHAL) is better known as its subsidiary, U-Haul International, which provides moving and storage services. The stock trades with a PEG ratio of 0.83 and price-to-sales of 0.80. The stock has pulled back dramatically from an all-time high set in February and is now consolidating on support near the $100 area. UHAL could be a big winner if the housing market begins to pick up steam in the coming year, as more people demand their services.
SEE: Why Housing Market Bubbles Pop
Flotek Industries (NYSE:FTK) supplies drilling and production related supplies to the energy and mining industries around the globe. The company has a PEG ratio of 0.79 and is not far from a new multi-year high. The stock has been consolidating between $11.50 and $13 for the last six weeks and it appears it could be poised for a breakout in the near future. The ties the stock has to the energy sector and drilling, should continue to boost the valuation of share prices as more and more companies explore around the globe for natural resources.
The Bottom Line
As mentioned above, the overall large-cap value segment has been lagging the overall stock market. That being said, there are still plenty of opportunities in the segment for investors willing to invest in individual stocks. The three highlighted in this article are undervalued per their PEG ratio and they have solid charts and stories to back up higher prices in the future. The trifecta typically will lead to outperforming the market as long as a risk management strategy is put into place after purchasing. Understanding your risk tolerance is also very important. For more, read What Is Your Risk Tolerance?.
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At the time of writing, Matthew McCall did not own shares in any of the companies mentioned in this article.