5 Great Stocks That Are Leading Benzinga's Rankings Today

It should come as no secret to anyone by now that I am a very research-driven investor. I consider myself a deep value investor at heart, and nothing excites me more than uncovering undervalued community banks. That is, without a doubt, my favorite segment of the market. There are a lot of reasons for that, but we'll get into those another time.

What I want to talk about today is how I approach investing and how you can use our new Benzinga ranking system to identify potentially lucrative opportunities.

Such as these five great buys that are showing market-beating momentum.

Now, I do an enormous amount of research. The bulk of my time isn't spent reading Wall Street research reports or tuning into CNBC to hear what the talking heads are saying. Instead, I spend my time reading reports, evaluating companies, testing different investment strategies, running data through financial and credit models, and refining our approach to investing.

I crunch numbers, analyze what works, discard what doesn't, and continuously refine my process.

Through all of this, me and the team have developed the new Benzinga ranking system. This ranking will appear whenever you pull up a stock, and it will show you how the stock ranks in four key areas: value, momentum, quality, and growth.

This allows you to mix and match different characteristics, whether you're looking for high-quality stocks with great growth potential or deep value stocks that also have strong quality indicators.

Over the years, we've become big believers in using value and momentum together. Our preferred approach is to have value stocks make up 50% of the portfolio and momentum stocks—especially momentum stocks with quality characteristics—make up the other 50%. We'll dive deeper into that another time, but today I want to share a simple but powerful concept with you.

Combining Value With Momentum

The folks at LSV Asset Management, a large mutual fund and managed account firm that follows a quantitative value-oriented approach, did extensive research on one slightly different idea: identify deeply undervalued stocks that are starting to show market-beating momentum.

The logic here is simple. These stocks are cheap, but more importantly, they're attracting buyers. This helps avoid one of the biggest pitfalls in value investing: the value trap.

A value trap is a stock that looks cheap on paper, but nobody cares. It languishes at a depressed price for years while investors sit around waiting for the market to notice.

Most people find that scenario difficult to stomach, and I don't blame them.

Using the Benzinga rankings, we can find stocks with high value scores. That means these companies are deeply undervalued across multiple metrics including earnings, cash flow, sales, and asset value. But then we take it a step further by incorporating trend.

I call trend the deep value of trading. Everyone knows deep value investing works. You can test it, run the academic studies, build models—it doesn't matter how you slice it, deep value delivers superior returns over time. The catch is that you have to be patient and aggressive, which is an unusual combination. You won't own the hot, exciting stocks the media loves. Instead, you'll own good businesses trading at bargain prices. And history has shown us time and again that these stocks consistently outperform.

The funniest thing I hear all day is when pundits on TV declare that value is dead or that book value no longer matters. Then you go back, run a simple model, and see that stocks bought at a discount to book value continue to outperform by a massive margin—even in the last several years, when growth and tech stocks have dominated. If you're managing $100 billion, you can't use this approach because the companies are too small. I don't have that problem. If you don't either, then deep value still works.

Everyone knows trend following works as well. Thousands of people have made millions of dollars using a trend-based approach to the markets.

It is not fast paced and is not new so most traders ignore it.

That said, nobody likes value traps. So we added trend to the equation.

When we combine value and trend, we can find undervalued stocks that are starting to attract buying pressure. If institutions begin moving into a stock, full value recognition can come much faster, leading to massive gains in a shorter time frame.

We use three trend filters—short-term, intermediate-term, and long-term. Today, I want to share a few stocks with high Benzinga value scores that have now given a short-term positive trend signal.

Five Undervalued Stocks Showing Great Momentum

First up, an old favorite of mine: Smith & Wesson Brands SWBI. I've made a lot of money in this stock over the years, and I also happen to own several of their products. The stock has been beaten down all year, largely because of the so-called "Trump slump." We saw this in 2017 too—when there's no immediate regulatory pressure to buy guns, demand dips. But Smith & Wesson is a great company trading at bargain-basement valuations, and now we're seeing institutional buying pressure. Lake Street just upgraded the stock from hold to buy and raised their price target. Plus, the stock pays a 4.7% dividend, so you're getting paid while you wait.

Next up: StoneCo Ltd. STNE, a Cayman Islands-based fintech company. This stock has been weak most of the year, but it's now triggering buy signals on both short-term and intermediate-term trends. It's trading at a single-digit P/E ratio, right around book value, and has a strong buyback program in place. Undervalued, underfollowed, and starting to move.

Another one I love: Algonquin Power & Utilities AQN. Algonquin owns a collection of regional gas, electric, and water utilities across the U.S. They recently exited the renewable energy business, which was the right move. This stock is trading at a steep discount to book value, and I've never lost money buying a utility under book. Institutions are starting to buy, and the short-term trend has reversed.

Then there's Titan Machinery TITN, a U.S.-based agricultural and construction equipment company. It's been out of favor, but it just got an upgrade from Baird, raising the price target to $25. The stock is at $17 now, and the trend has reversed on increasing volume—exactly what we want to see.

Last but not least: PagSeguro Digital PAGS, a Brazilian fintech company focused on small businesses and micro-merchants. This company is doing $3.4 billion in annual sales and trades at dirt-cheap multiples of earnings, sales, book value, and cash flow. The stock has been crushed because Brazil is out of favor, but the short-term trend has flipped positive. This is a solid business with excellent fundamentals, and now we're starting to see buying pressure build.

So there you have it—deeply undervalued stocks where the short-term trend has turned positive. Institutions are recognizing these companies as good businesses trading at fire-sale prices, and money is starting to move in. That's how we use the Benzinga rankings to uncover potential investments and trading opportunities.

We'll be diving deeper into this in the weeks and months ahead, exploring different ways to use these rankings to improve investment performance. But for now, keep an eye on these names, and we'll check back in soon.

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