Every investor wants to invest in stocks that offer highest “reward-to-risk” ratio. However, the return on a stock is a function of various broad-based as well as company-specific factors, on which an investor has no control.
For that reason, some investors select stocks that offer dividend income as part of the total returns. While price appreciation of a stock is largely uncertain, dividend adds some certainty. In fact, buying a stock at a reasonable or cheap price increases the chances of price appreciation as well. Â
But what’s the definition of cheap price?
A “cheaper” stock is the one which stands undervalued compared with its peers and the industry average, on the basis of various metrics. Cheap or undervalued stocks are likely to revert to the industry average in the long run, as when their potential is discovered, making the otherwise mysterious price appreciation factor somewhat certain.
So stocks with a combination of cheap price and solid dividend should serve as an effective hedge against any economic uncertainty.
Currently, the U.S. economy is showing improvement on the back of a stronger labor market, pick-up in retail and housing activities, and rising consumer confidence. This is also reflected in important stock market indices, including NASDAQ and S&P 500, which are up 275% and 210%, respectively, since Mar 2009. Such improvement enhances the chances of faster appreciation in a value stock.
3 Stocks to Buy Now
With the help of our new style score system and the Zacks Rank, we have shortlisted 3 ultra cheap value stocks with solid dividends. Each of these stocks has a Value Score of ‘A,’ a dividend yield higher than 2.5% and a Zacks Rank #2 (Buy) or better. These stocks look strong on the earnings growth front as well – each slated to grow more than 10% in 2015.
American Railcar Industries, Inc. (ARII - Snapshot Report)
Headquartered in St Charles, MO, American Railcar is a leading manufacturer of hopper and tank railcars in North America. Additionally, the company leases railcars to third parties, and offers railcar repair and refurbish services, fleet management, as well as engineering and field services.
