Geopolitical Volatility Boosts Value Investing: 4 Low-PEG Picks

Amid intensifying geopolitical tensions, AI-driven economic disruption and rising commodity prices, global markets have entered a period of heightened volatility. Gold has surged to record levels as investors seek safe havens during uncertainty and inflation concerns, while equities face correction risks from geopolitical conflicts, oil shocks and elevated valuations.

In such an environment, value investing often becomes attractive because fundamentally strong companies may trade at discounted prices due to broad market fear rather than deteriorating fundamentals. Historically, such dislocations allow patient investors to accumulate cash-generating businesses at lower valuations, positioning portfolios to benefit when macro uncertainty stabilizes and sentiment normalizes.

Here, we discuss four such stocks - Air Lease AL, National Energy Services Reunited NESR, Catalyst Pharmaceuticals CPRX and JBT Marel Corporation JBTM.

However, this apparently simple value investment technique has some drawbacks, and not understanding the strategy properly may often lead to “value traps.” In such a situation, these value picks start to underperform over the long run as the temporary problems, which once drove the share price down, turn out to be persistent.

There are many value investment yardsticks, such as dividend yield, P/E or P/B, which are simple and can single out whether a stock is trading at a discount.

However, for investors looking to escape such value traps, it is also vital to determine where the stock would be headed in the next 12 to 24 months. Warren Buffett advises these investors to focus on the earnings growth potential of a stock. This is where lies the importance of a not-so-popular value investing metric, the PEG ratio.

PEG Ratio at a Glance

The PEG ratio is defined as (Price/ Earnings)/Earnings Growth Rate

A low PEG ratio is always better for value investors.

While P/E alone fails to identify a true value stock, PEG helps find the intrinsic value of a stock.

There are some drawbacks to using the PEG ratio. It doesn’t consider the very common situation of changing growth rates, such as the forecast of the first three years at a very high growth rate, followed by a sustainable but lower growth rate over the long term.

Hence, PEG-based investing can turn out to be even more rewarding if some other relevant parameters are also taken into consideration.

Here are some of the screening criteria for a winning strategy:

PEG Ratio less than X Industry Median

P/E Ratio (using F1) less than X Industry Median (for more accurate valuation purposes)

Zacks Rank #1 (Strong Buy) or 2 (Buy) (Whether good market conditions or bad, stocks with a Zacks Rank #1 or 2 have a proven history of success.)

Market Capitalization greater than $1 billion (This helps us to focus on companies that have strong liquidity.)

Average 20-Day Volume greater than 50,000 (A substantial trading volume ensures that the stock is easily tradable.)

Percentage Change F1 Earnings Estimate Revisions (4 Weeks) greater than 5% (Upward estimate revisions add to the optimism, suggesting further bullishness.)

Value Score of less than or equal to B: Our research shows that stocks with a Style Score of A or B when combined with a Zacks Rank #1, 2 or 3 (Hold) offer the best upside potential. You can see the complete list of today’s Zacks #1 Rank stocks here.

Our PEG-Driven Picks

Here are four stocks that qualified the screening:

Air Lease: Los Angeles, CA-based Air Lease is a leading aircraft leasing company. It is primarily involved in purchasing commercial aircraft directly from manufacturers and leasing the same to its airline customers across the globe. Some noteworthy manufacturers that the company works with are The Boeing Company and Airbus S.A.S.

AL currently has a Zacks Rank #2 and a Value Score of A. Air Lease also has an impressive five-year expected growth rate of 17.3%.

National Energy Services: The company provides oilfield services across the Middle East and North Africa. Its Production Services segment offers hydraulic fracturing, coiled tubing, cementing, nitrogen and stimulation services, along with production chemicals, artificial lift, safety systems and water treatment solutions. The Drilling and Evaluation Services segment supplies drilling and workover rigs, directional drilling, drilling fluids, wireline and slickline services, well testing and various drilling tools, wellhead products and intervention solutions.

NESR currently has a Zacks Rank #1 and a Value Score of B. National Energy Services also has an impressive five-year expected growth rate of 23%.

Catalyst Pharmaceuticals: Coral Gables, FL-based Catalyst Pharmaceuticals is a commercial-stage biopharmaceutical company focused on the development and commercialization of therapies targeting rare and difficult-to-treat diseases. In October 2012, Catalyst Pharmaceuticals licensed U.S. rights to Firdapse (amifampridine phosphate) from BioMarin Pharmaceutical. The drug is approved in the EU, United States, Canada and Japan for treating Lambert-Eaton Myasthenic Syndrome in adults, with patents protecting it through 2037.

Apart from a discounted PEG and P/E, Catalyst Pharmaceuticals currently has a Zacks Rank #1 and a Value Score of A. CPRX has a long-term historical growth rate of 46.4%.

JBT Marel: It provides technology solutions for the food and beverage industry across North America, Europe, the Middle East, Africa, Asia Pacific and Latin America. Operating through Protein Solutions and Prepared Food and Beverage Solutions, the company supplies equipment, software and services for food processing.

JBT Marel has a Zacks Rank #2 and a Value Score of B. JBTM also has an impressive five-year historical growth rate of 11.5%.

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This article originally published on Zacks Investment Research (zacks.com).

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