Historic volatility has shaken the stock market badly and pushed it to correction territory last week, with investors fearing the end of cheap money policy era due to higher inflation, faster growth and rising budget deficits. This has raised the appeal of value investing.

This is especially true as value stocks have strong fundamentals — earnings, dividends, book value and cash flow — that trade below their intrinsic value and are undervalued by the market. Value stocks often overreact to both positive and negative news, resulting in share price movement that does not reflect the company’s true long-term fundamentals. This creates buying opportunities in such stocks at depressed prices and shows the potential for capital appreciation when the stock finally reflects its true market price.

As a result, value stocks have the potential to deliver higher returns and exhibit lower volatility compared with growth and blend counterparts. In fact, these stocks outperform the growth ones across all asset classes when considered on a long-term investment horizon. Also, value stocks are less susceptible to trending markets.

The long-term fundamentals for the stocks have been bullish given accelerating global economic growth, strong corporate earnings and the euphoria surrounding the new tax legislation. Additionally, growth in the U.S. economy has been solid, buoyed by an impressive labor market, higher wages, increasing consumer spending and high consumer confidence.

In particular, the biggest tax overhaul in decades is expected to provide a huge boost to the value stocks. This is because massive tax cuts will create an economic surge, boosting job growth in manufacturing and other sectors, increasing inflation and interest rates. Additionally, it would lead to higher earnings, increased buyback activities, and fatty dividends, prompting investors to rotate out of growth and into value stocks.

Given this, investors may want to consider a nice value play in the current erratic market. For them, we have presented five ETFs and stocks that will likely outperform in the coming weeks if volatility prevails.

ETF Picks

Using our database, we have selected popular value ETFs that provide exposure to the broad stock market instead of a particular sector and have a Zacks ETF Rank #3 (Hold) with an expense ratio of below 0.50%. These products easily survived the tumultuous ride last week, and are in the green.

iShares Russell 1000 Value ETF (IWD - Free Report)

This ETF offers exposure to U.S. companies that are thought to be undervalued by the market relative to comparable companies by tracking the Russell 1000 Value Index.

Zacks ETF Rank: #3
Expense Ratio: 0.20%
AUM: $36.6 billion
One-Week Return: 0.09%   

Vanguard Value ETF (VTV - Free Report)

This fund seeks to track the CRSP US Large Cap Value Index, which measures the performance of the largest U.S. value stocks.

Zacks ETF Rank: #3
Expense Ratio: 0.06%
AUM: $35.6 billion   
One-Week Return: 0.4%   

Vanguard Mid-Cap Value ETF (VOE - Free Report)

This fund targets the U.S. mid-cap segment and follows the CRSP US Mid Cap Value Index.

Zacks ETF Rank: #3
Expense Ratio: 0.07%
AUM: $8.2 billion
One-Week Return: 0.2%

PowerShares FTSE RAFI US 1000 Portfolio (PRF - Free Report)

This fund tracks the FTSE RAFI US 1000 Index that measures the performance of the largest U.S. equities based on the following four fundamental measures: book value, cash flow, sales and dividends.

Zacks ETF Rank: #3
Expense Ratio: 0.39%
AUM: $5.1 billion
One-Week Return: 0.12%

Vanguard Small-Cap Value ETF (VBR - Free Report)

This fund follows the CRSP US Small Cap Value Index that measures the return of small-capitalization value stocks.

Zacks ETF Rank: #3
Expense Ratio: 0.07%
AUM: $12.3 billion
One-Week Return: 0.05%

Stock Picks

For stocks, we have chosen five top picks using the Zacks Stock Screener that fits our criteria: a Zacks Rank #1 (Strong Buy) or 2 (Buy), a Value Style Score of A, a Zacks Industry Rank within the top 10%, and market cap of over $1 billion. Our chosen stocks are:

Micron Technology Inc. (MU - Free Report)

It is one of the leading worldwide providers of semiconductor memory solutions. 

Zacks Rank: #1
Zacks Industry Rank: Top 1%
Market Cap: $48.9 billion

Aflac Incorporated (AFL - Free Report)

This is a Fortune 500 company, providing financial protection to more than 50 million people worldwide.

Zacks Rank: #2
Zacks Industry Rank: Top 3%
Market Cap: $34.8 billion

Best Buy Co. Inc. (BBY - Free Report)

It is a leading retailer of technology products, services and solutions.

Zacks Rank: #2
Zacks Industry Rank: Top 3%
Market Cap: $18.6 billion

Unum Group (UNM - Free Report)

It is the industry leader in disability income protection and one of the top providers of supplemental benefits in the nation.

Zacks Rank: #2
Zacks Industry Rank: Top 3%
Market Cap: $12.2 billion

Meritage Homes Corporation (MTH - Free Report)

It is the eighth-largest public homebuilder in the United States. Meritage Homes builds and sells single-family homes for first-time, move-up, luxury and active adult buyers across the West, South and Southeast United States.

Zacks Rank: #2
Zacks Industry Rank: Top 10%
Market Cap: $1.98 billion

Bottom Line

Value ETFs and stocks seek to outperform amid market uncertainty. As such, investors shouldn’t forget the value space and should take a closer look at a few of the attractive value products in this segment for excellent exposure and some outperformance in the near term.