Finding value in a bull market

 

Each of the three major U.S. stock indices has been strong since the presidential election, with the Dow Jones currently attempting to cross through the psychologically significant 20,000 mark for the first time in history.

With all indices trading near record levels, it has become harder to find value in the market, but there are still plenty of high-quality stocks trading at attractive valuations for investors that have money they need to put to work in the market.

We are going to look for five stocks that offer attractive valuations at this point by looking at price-to-earnings ratios as well as forecast earnings growth.

P/E ratios and forecast earnings growth are two easy ways to gauge a stock’s valuation, but on their own neither can really pinpoint a good value. You need to look for stocks that are trading at a favorable multiple at the current time, as well as have strong forecast earnings growth.

By combining P/E’s and bullish growth estimates, you can narrow down the list of potential buys from the overall stock universe, and improve the likelihood of a building a market-beating portfolio.

After running our screens, we have found the following five stocks that offer good value in the current bull market.

Apple Inc.

iPhone maker Apple Inc. (AAPL) has been trading at an attractive value for several years. The stock is now trading with a P/E of just 14.3, with earnings forecast to rise by 12.1% in 2017. In most cases, when you see just a low P/E and strong growth forecast, you can reasonably assume that the stock is due for a breakout to the upside, but with Apple stock that is probably not going to be the case. Yes, there is nice value in the stock, but I would not look for huge gains moving forward. The stock is trading just shy of its 52-week high, and is in a strong upward trend. What I would expect from the stock would be for shares to build on recent gains and trend higher, most likely outpacing the overall market, but if it is huge gains you are looking for, AAPL is probably not the best stock at this point. If you are looking for a high quality stock, at a great price that you can hold and expect steady gains moving forward, then AAPL may be the perfect stock to add to your portfolio from a valuation standpoint.
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Chart courtesy of www.stockcharts.com

MetLife Inc.

Insurance provider MetLife (MET) is trading in the upper end of its 52-week range, in a strong upward trend since the presidential election and recent interest rate increase. The stock has an attractive P/E of 16.7, and earnings are expected to rise 15.7% in 2017. The insurance sector is among the sectors best poised to benefit from rising interest rates. Insurance companies make a significant portion of their income from interest earned on premiums that get invested in fixed income assets before being used to pay out claims. This is referred to as the “float”, and higher rates mean a big boost in the income earned from interest. We have already seen the Federal Reserve lift rates once in December, and it is expected to boost rates at least a couple more times in 2017 barring any serious slowdown in the overall economy. The outlook is upbeat for the insurance sector, and with MET’s valuation and forecast earnings growth, the stock looks like a great value in this bull market.

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Chart courtesy of www.stockcharts.com

BB&T Corp.

Regional bank BB&T Corp. (BBT) is trading just shy of its all-time high, but there still appears to be a lot of value left in the stock. Regional banks will benefit as interest rates start to rise, which is why the stock has already traded up to a new all-time high, but there appears to be additional upside potential. BBT shares trade with a P/E of 17.3, with analysts forecasting earnings growth of 11.8% in 2017. Based on the valuation and forecast earnings growth, there is a decent chance that BBT will continue to build on its recent gains. What is important to really keep in mind is that the earnings growth that analysts expect to see could be greatly understated if the Federal Reserve actually lifts rates two or three more times over the next year, which is a real possibility. I am bullish on the regional banking sector, and believe that BBT offers a great value for investors wanting to get into the sector.

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Chart courtesy of www.stockcharts.com

Carnival Corp.

Cruise operator Carnival Corp. (CCL) has risen to a new 52-week high following the presidential election, on hopes that Trump’s economic policies will boost the overall economy, which in turn would lead to higher discretionary spending on vacations. While rising oil prices could hurt the travel sector, for now analysts remain upbeat on the company’s growth potential, calling for earnings growth of 15.6% in 2017. This strong earnings growth, in conjunction with a P/E of just 16.9 creates a good buying opportunity for investors wanting to establish, or add on to a position in the cruise operator at this point. The stock

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Chart courtesy of www.stockcharts.com

AutoZone, Inc.

Auto parts retailer AutoZone, Inc. (AZO) took part in the post-election rally with the overall market, and the stock is currently trading in the upper end of its 52-week range. The long-term outlook for the company remains upbeat, with the average age of vehicles on the road in the U.S. at a record high 11.5 years. It is true that a big reason why cars are staying on the road longer is that cars and trucks are being built better, but that does not take away from the fact that older cars will need replacement parts and repairs to keep them road-worthy, which is a big reason why sentiment has been bullish on the stock over the last four years. The stock has a P/E of 18.8, and earnings are forecast to rise 11.0% in 2017, which should support a bullish take on the stock at this point.

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Chart courtesy of www.stockcharts.com

Symbols: AAPL AZO BBT CCL MET
Michael Fowlkes

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.

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