Investor fears over an impending global trade war, tightening monetary policy, heightened regulation on high-flying sectors such as tech, and overall market uncertainty, dragged U.S. equities down in the first quarter of 2018. As the market turmoil continues, many on the Street point to signals that the second quarter will look a lot like the first, telling investors to buckle up for a bumpy ride after nine years of smooth sailing in a bull market. (See also: Stocks Post Worst Q1 Since Great Depression.)
While the recent sell-off hits leaders in red-hot industries such as tech and consumer discretionary, one team of analysts has highlighted three stocks that are value plays in sectors that have been largely overlooked by Wall Street over the recent period.
Hodges Capital Chief Executive Officer (CEO) and Chief Investment Officer (CIO) Craig Hodges suggested that investors can find handfuls of stocks out there that are still undervalued, given they are willing to do their homework, as reported by Barron's.
Picks in Retail, Energy and Steel to Outperform
Hodges recommends Parsley Energy Inc. (PE), indicating that his firm has been growing its stake in the Austin, Texas-based company. The Dallas-based money management firm applauded the company's choice acreage in the productive Permian Basin. PE shares are down 5.9% year-to-date (YTD), compared to the S&P 500's 0.2% decline over the same period.
As for retail, the investor likes Floor & Decor Holdings Inc. (FND), which he deems a rare success story in its category. Traditional brick-and-mortar retailers suffered for the most part of 2016 on investor fears over a highly promotional environment alongside changing consumer preferences, particularly regarding the rising dominance of e-commerce and Amazon.com Inc. (AMZN). Hodges expects the multichannel specialty retailer to continue to benefit by catering to contractors and other professionals, as its business is boosted by tailwinds from the strong housing market. FND stock has rallied 18.8% in 2018.
Hodges recommends investors take a second look at U.S. industrial stocks such as United States Steel Corp. (X), which failed to hold onto gains racked on following the announcement of President Trump's calls for levies on imported steel products. He sees a disconnect between the company's improved earnings profile and its stock price, which has fallen almost back to where it began before the tariff news. The Pittsburgh-based integrated steel producer has seen it shares rise 3.2% YTD. (See also: 7 High-Return Stocks to Survive Market's Chaos.)