When I need a new investment idea, I screen for companies that are doubling the bonds in terms of higher yield. Such research increases the odds of finding a value stock. I like to consider the spot rate on 20-year high-quality market corporate bonds as a benchmark.
These bond securities represent the corporate loan issued by companies that are triple-A, double-A and single-A rated. The most recent monthly observation on the spot rate on the 20-year bond is indicating a 4.43% yield.
Therefore, value investors may want to consider the following stocks that have price-earnings ratios of 11.3 or lower.
The first stock is Rio Tinto PLC (RIO, Financial). The stock has a price-earnings ratio of 9.12 versus an industry median of 14.73. The Anglo-Australian multinational metals and mining company – which is one of the largest in the world - was trading around $50.65 on Monday for a market capitalization of roughly $85 billion. The stock has climbed 2% for the 52 weeks through Nov. 19. The share price at close on Monday was 11% above the 52-week low of $45.62 and nearly 20% below the 52-week high of $60.72. The stock has a price-book ratio of 1.56 versus an industry median of 1.74 and an EV-to-EBITDA ratio of 5.13 compared to an industry median of 9.3.
The chart below compares the share price at close on Monday with the Peter Lynch earnings line. It appears the stock is cheap.
Freeport-McMoRan Inc. (FCX, Financial) closed at $11.51 on Monday with a market capitalization of $16.5 billion. The stock has a price-earnings ratio of 5.13 versus an industry median of 14.76. The North American producer of molybdenum and copper is down 22% for the 52 weeks through Nov. 19. The price-book ratio is 1.62 versus an industry median of 1.74 and the EV-to-EBITDA ratio is 3.57 versus an industry median of 9.3. The 52-week range is $10.59 to $20.25.
The chart below shows the stock is trading below the Peter Lynch earnings line. Therefore, it is currently cheap.
The third stock is Turquoise Hill Resources Ltd. (TRQ, Financial) with a price-earnings ratio of 9.57 versus an industry median of 14.76. The stock declined 40% for the 52 weeks through Nov. 19 to $1.88 per share. The market capitalization is about $3.8 billion, the price-book ratio is 0.39 versus an industry median of 1.74 and the EV-to-EBITDA ratio is 13.08 compared to an industry median of 9.3. The stock's closing price on Monday was 18.2% off the 52-week low of $1.59 and 91% below the 52-week high of $3.59.
Turquoise Hill Resources is a Canadian mineral exploration and development company. Its main metallic deposit, Oyu Tolgoi, is located in the southern part of Mongolia.
The Peter Lynch chart suggests the stock is not expensive.
Disclosure: I have no positions in any securities mentioned in this article.
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