Screening for companies that are more than doubling 20-year high-quality corporate bonds' earnings yields raises the possibility of achieving impressive margins.
These bonds represent corporate loans issued by companies that are triple-A, double-A and single-A rated. The Federal Reserve Bank of St. Louis showed that the monthly average spot rate of the 20-year bonds is 4.26%.
Thus, the following large caps have an earnings yield of more than 8.5% or a price-earnings ratio of less than 11.74 as of May 31.
These stocks are cheap according to the Peter Lynch chart. They have strong financial conditions and run a profitable business that will likely stay so.
What’s more? Wall Street issued a recommendation rating of overweight to buy. The overweight recommendation rating means that the stock is predicted to outperform either the industry or the entire market.
Telefonica SA (TEF, Financial) traded around $7.93 per share at close on Friday for a market capitalization of $41.48 billion. The Spanish telecommunication services company has an earnings yield of 8.9% versus the industry median of 5.2% or a price-earnings ratio of 11.22 versus the industry median of 19.33.
Also, the price-book ratio is 1.89 versus the industry median of 2.07, and the price-sales ratio is 0.76 compared to the industry median of 1.5.
The share price declined 6.3% so far this year. The share price at close Friday was 3% off the 52-week low of $7.70 and 15.3% below the 52-week high of $9.14.
The stock seems to be priced fairly, according to the below Peter Lynch chart.
GuruFocus assigned a rating of 6 out of 10 for the financial strength and for the profitability and growth.
The stock has an overweight recommendation rating and an average target price of $10.01 per share, reflecting 26.2% upside from the share price at close on Friday.
Applied Materials Inc. (AMAT, Financial) traded around $38.69 per share at close on Friday for a market capitalization of $36.22 billion. The Santa Clara, California-based provider of equipment, services and software to semiconductors has an earnings yield of 9.2% versus the industry median of 5.1% or a price-earnings ratio of 10.87 versus the industry median of 19.55.
The stock also has a price-book ratio of 4.47 versus the industry median of 1.85 and a price-sales ratio of 2.40 compared to the industry median of 1.67.
Year to date the stock is up 18%. The share price at close Friday was 34.4% above the 52-week low of $28.79 and 37.6% from the 52-week high of $53.23.
According to the Peter Lynch chart, the stock appears to trade cheaply.
Applied Materials has a GuruFocus financial strength rating of 7 out of 10 and profitability and growth rating of 8 out of 10.
The stock has a buy recommendation rating and an average target price of $52.86 per share, which represents a 36.8% growth from the closing share price of Friday.
TE Connectivity Ltd. (TEL, Financial) traded around $84.23 per share at close on Friday with a market capitalization of approximately $28.41 billion. The Swiss electronic components company has an earnings yield of 9.7% versus the industry median of 6% or a price-earnings ratio of 10.36 versus the industry median of 16.75.
The stock also has a price-book ratio of 2.87 versus the industry median of 1.47 and a price-sales ratio of 2.16 versus the industry median of 0.98.
The share price increased 11% so far this year. The share price at close Friday was 20.6% above the 52-week low of $69.84 and 18.2% from the 52-week high of $99.52.
The stock appears cheap according to the Peter Lynch chart.
GuruFocus assigned a financial strength rating of 6 out of 10 and a profitability and growth rating of 7 out of 10.
Shares of TE Connectivity Ltd. have an overweight recommendation rating and an average target price of $104.07, mirroring a 23.6% increase from the share price at close on Friday.
Disclosure: I have no positions in any securities mentioned.
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