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How to Find Great Value Stocks to Buy in October

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The stock market experienced another round of selling on Tuesday amid a busy week of economic data releases. Reports on consumer confidence, the housing market, Q2 GDP, consumer spending, and the Fedโ€™s preferred inflation gauge (PCE) will influence market sentiment. The S&P 500 and Nasdaq both declined over 1% by early afternoon, potentially leading both indexes to test their 200-day moving averages in the coming days. Fortunately, both benchmarks are reaching oversold RSI levels, indicating potential buying opportunities.

The S&P 500 is approaching its most oversold levels since the end of Q3 2022, putting its summer gains at risk. Despite the selling pressure during a historically weak month for stocks, the market continues to display a bullish backdrop. The Federal Reserveโ€™s tightening cycle is likely nearing its end, and the excellent earnings growth prospects for the S&P 500 in 2024 and 2025 do not suggest an impending recession.

Investors seeking exposure to the market and looking to buy stocks in October should search for companies that offer a compelling combination of strong value and improving earnings outlook. Here, we present a strategy to identify such stocks.

Screen Basics for Finding Value Stocks

This strategy involves using the Research Wizard to screen highly ranked Zacks stocks and identify top value names. The screen specifically focuses on stocks with a Zacks Rank of #1 (Strong Buy) or #2 (Buy). Additionally, it filters stocks with a price-to-earnings (P/E) ratio below the industry median and a price-to-sales (P/S) ratio below the industry median. By doing this, we ensure relative value compared to peers rather than only using the broader market as a reference. Moreover, the screen considers quarterly earnings rates above the median for the industry. Finally, the strategy employs a blend of upgrades and estimate revisions to select the best seven stocks that meet the screening criteria.

Find the screen details below:

  • Zacks Rank #1 (Strong Buy) or #2 (Buy) Stocks
  • P/E (using 12-month EPS) โ€“ Below the Median for its Industry
  • P/S โ€“ Below the Median for its Industry
  • Percentage Change Act. EPS Q(0)/Q(-1)
  • Rating Change and Revisions factors (to narrow down the list to the top 7 stocks)

This strategy is named bt_sow_value_method1 and can be found in the SoW (Screen of the Week) folder within the Research Wizard.

Out of the seven stocks that made it through this weekโ€™s screen, one notable stock is Pampa Energรญa (PAM).

Zacks Investment Research
Image Source: Zacks Investment Research

Pampa Energรญa is a major fully integrated electricity company in Argentina. Through its subsidiaries, it engages in the generation, transmission, and distribution of electricity in the country. Over the past decade, PAM shares have significantly outperformed the Zacks Utilities sector, with a 680% gain compared to the sectorโ€™s 10%. This impressive performance includes a significant downturn from its 2018 highs. In the last three years, PAM stock has soared by 275% and by 25% in the last six months. Currently trading 7% below its average Zacks price target, Pampa Energรญa is positioned between its 50-day and 200-day moving averages.

Zacks Investment Research
Image Source: Zacks Investment Research

Despite its remarkable performance, Pampa Energรญa trades at approximately a 70% discount to the Utilities sector, with a forward P/E ratio of 4.4X for the next 12 months. Revenue projections indicate slight growth for this year and the next, while adjusted earnings are expected to remain nearly flat this year and then increase by 11% next year.

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Disclosure: Officers, directors, and employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options mentioned in this material. An affiliated investment advisory firm may also own or have sold short securities and/or hold long and/or short positions in options mentioned in this material.

Disclosure: Performance information for Zacksโ€™ portfolios and strategies is available at: https://www.zacks.com/performance/.

Zacksโ€™ Super Screen

Since 2000, one of Zacksโ€™ top stock-picking screens has had an average annual gain of +55.2%, while the market only gained +6.2% per year. Even our top 10 screens outperformed the market significantly, with an average gain of +36.1%. To see which stocks theyโ€™re uncovering today, click here for a free preview.

Download the 7 Best Stocks for the Next 30 Days and access Zacks Investment Researchโ€™s latest recommendations.

Access the Free Stock Analysis Report for Pampa Energia S.A. (PAM)

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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