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JetBlue, One of Five Value Stocks Showing Growth

This article is more than 10 years old.

The trouble with value stocks is that quite often there is a good reason why they are cheap. Buying a stock at a cheap price can be a good thing, but if it stays cheap, it is not going to generate a great return for your portfolio. The holy grail of value investing is identifying a value stock just before something occurs that changes how the market views the stock. With the economy exhibiting solid signs of growth, many companies are beginning to see their business pick up. When a value stock starts to show growth, it can be a catalyst to attract growth investors and thus be a signal that the stock is about to deliver a great return.

Marketocracy Master Kai Petainen, adjunct finance lecturer and trading floor manager at the University of Michigan's Ross Graduate School of Business, has spent the past 10 years building a model to predict which stocks institutional investors are going to find attractive. By anticipating where the elephants of the investing world are going to run next and identifying the catalysts for these value stocks, Kai’s Marketocracy model portfolio has averaged over 18% a year for more than ten years.

Of the top stocks in Kai’s portfolio today, five have valuations that have long made them attractive to value investors. Now these stocks are seeing improving business results that may attract growth investors as well. The philosophy is that as the economy gains strength and company earnings grow, the more attracted growth funds will be to these companies. As growth funds buy into these stocks, the prices will be driven higher, thus delivering a good return for those who anticipated this activity.

Is he right to predict this? Here are the top five stocks that he’s currently holding.

You can view Kai’s top five holdings, learn more about his strategy, and track his progress with monthly Performance Insights emailed directly to you at the end of each month.

JetBlue Airways Corporation (NASDAQ:JBLU)

JetBlue is a passenger airline. In the past year, the airline industry has benefited from decreasing competition and lower fuel costs. JetBlue’s earnings growth rate has been ratcheting up slowly over the past three years. Currently, it sports a Price to Earnings (PE) ratio of 17, which is right in the middle of its industry peers who range from 3 to 34. On a Price to Sales (PS) basis, the company is at 0.5, which is on the low end of its peers who are ranging from 0.2 all the way up to 2.63.

Och-Ziff Capital Management Group LLC (NYSE:OZM)

Och-Ziff Capital Management Group LLC is an institutional alternative asset manager. Last quarter’s earnings significantly beat analyst’s expectations, while the stock trades at a PS of 2, which is on the very low end of the industry’s range from 1 to 51.

Ingram Micro Inc. (NYSE:IM)

Ingram Micro is a wholesale technology distributor and a global leader in supply-chain management and mobile device lifecycle services. Sales grew 12.5% last year, but the company trades at a PS of .09, which is on the low end of the industry’s range of .01 to .52

Tyson Foods, Inc. (NYSE:TSN)

Tyson Foods, Inc. is a food production company. Last quarter, the company reported a net profit of $254M up 47% from the prior year and yet trades at a PS of 0.40 — at the bottom of the industry’s range of 0.40 to 1.38.

Sanderson Farms, Inc. (NASDAQ:SAFM)

Sanderson Farms, Inc. is a poultry processing company. Last quarter’s net income rose to $1.25 per share compared with a loss of $0.31 per share for the same quarter last year. The consensus estimate was $0.85, so they beat Wall Street’s expectations by a quite a bit. The company’s PE is 11 and is on the low end of its peers who range from 9 to 24.

Clients in our SMA program at Marketocracy own these stocks because they have allocated a portion of their account to Kai’s model portfolio. Visit our website for more information about Kai Petainen.

Connect with Ken Kam on LinkedIn.

Disclosure: I am the portfolio manager for mutual and hedge funds advised by Marketocracy Capital Management, an SEC registered investment advisor. Before relying on the opinions expressed in this article, you should assume that Marketocracy, its affiliates, clients, and I have material financial interests in these stocks and may hold or trade them contrary to these opinions when, in our view, market conditions change.