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4 PEG-Based Value Stocks to Neutralize Trump 2.0-Led Market Volatility
Urmimala Biswas
5 min read

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With the commencement of Trump 2.0, the equity market experienced notable volatility, influenced by his administration's policy announcements. Yesterday during the inauguration, markets initially reacted positively. However, subsequent statements regarding potential tariffs and rescinding of several immigration orders and other executive orders of the previous administrations led to swift reversals.

While investors are currently closely monitoring all policy developments, such kind of political and macroeconomic upheavals-led market volatilities often leave them uncertain about whether to stay on the course, take a defensive stance or pivot their strategies entirely. Historically, it has been seen that in times of volatility, investors tend to choose value investing over other options like growth or momentum. As soon as other investors start selling their stocks at a cheaper rate in times of market uncertainty, value investors take this as an opportunity to pick good stocks at a discounted price.

Several stocks that have surged significantly in the recent past have shown the overwhelming success of this pure-play investment strategy. Here, we discuss four such stocks - Wells Fargo & Company WFC, Exelixis EXEL, Delta Air Lines DAL and The Greenbrier Companies GBX.

More on Value Investing

This simple value investment technique, however, has some drawbacks, and not properly understanding the strategy may often lead to “value traps.” In such a situation, these value picks start to underperform over the long run when 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 will 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 the importance of a not-so-popular value investing metric, the PEG ratio, lies.

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 does not consider the 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.

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