If you want to increase your chances of superior returns, then looking for fairly priced stocks of companies that have strong balance sheets and are forecasted to grow their earnings substantially is a good start.
To do this, I searched for stocks trading below or near the Peter Lynch earnings line which have return on invested capital (aka ROIC) that exceeds the weighted average cost of capital (aka WACC).
According to the estimates produced by sell-side analysts on Wall Street, the net earnings growth rates of these stocks is expected to compare to the S&P 500 index over the next five years.
Asahi Group Holdings
The first stock under consideration is Asahi Group Holdings Ltd (ASBRF, Financial), a Japanese manufacturer and seller of alcoholic beverages, soft drinks and food products.
The stock ($38.06 as of Thursday) trades below the Peter Lynch earnings line, which indicates it is fairly priced.
The stock has a market capitalization of $17.43 billion with a 52-week price range of $38.06 to $50.77 per share.
Asahi Group Holdings has a return on invested capital of 7.05% versus the weighted average cost of capital of 1.38%.
Wall Street analysts forecast that Asahi Group Holdings will grow its net earnings by 16.10% every year over the next five years versus the S&P 500’s growth rate of 8%.
Analysts issued an overweight recommendation rating for this stock with an average price target of $55.12, reflecting a 45% upside from Thursday’s closing price.
Systemax Inc
The second stock under consideration is Systemax Inc (SYX, Financial), a Port Washington, New York-based marketer and supplier of brand name and private label industrial and business equipment.
The share price ($18.91 at close on Thursday) trades near the Peter Lynch earnings line, suggesting that the stock is still fairly priced.
The stock has a market capitalization of $752.50 million and a 52-week price range of $18.49 to $26.57.
Systemax Inc has a return on invested capital of 75.94%, which exceeds the weighted average cost of capital of 3.46%.
The estimates produced by Wall Street sell-side analysts show that Systemax is expected to grow its net earnings by 18% every year over the next five years versus the S&P 500’s growth rate of 8%.
Sell-side analysts issued a buy recommendation rating for this stock with an average price target of $32 per share, reflecting a 60% upside from Thursday’s closing price.
Ameresco Inc
The third stock under consideration is Ameresco Inc (AMRC, Financial), a Framingham, Massachusetts-based provider of comprehensive energy services to North American and European businesses and organizations.
The share price ($22.53 at close on Thursday) is just slightly above the Peter Lynch earnings line, indicating that the stock is not too overvalued.
The stock has a market capitalization of $1.07 billion with a 52-week price range of $13.11 to $26.19 per share.
Ameresco’s business is generating a 7.71% return on invested capital against a weighted average cost of capital of 0.22%.
Wall Street analysts estimate that the company will grow its net earnings by 25% every year over the next five years versus the S&P 500 growth rate of 8%.
The stock has a buy recommendation rating and an average share price target of $27.60, mirroring a 22.5% upside to hit within a year.
Disclosure: I have no positions in any securities mentioned.
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