Selecting stocks that more than double the earnings return that 20-year high-quality corporate bonds grant to their possessors enhances the likelihood of finding value opportunities. Holders of these bonds, which represent corporate loans issued by triple-A, double-A and single-A-rated companies, receive a 3.51% monthly spot rate.
The following stocks grant earnings returns of more than 7% and trade their earnings for less than 14.25 times their price (the earnings return is the inverse of the price-earnings ratio).
D.R. Horton
Shares of D.R. Horton Inc. (DHI, Financial) closed at $54.81 on Friday for a market capitalization of $20.20 billion. The Arlington, Texas-based homebuilder has an earnings yield of 7.84% versus the industry median of 9.41% and a price-earnings ratio of 12.75 versus the industry median of 10.63.
The stock has risen 126.6% over the past five years through Dec. 13. Regardless of the growth, the share price still trades below its earnings line based on the Peter Lynch chart.
GuruFocus assigned a rating of 6 out of 10 for the company's financial strength and a rating of 8 out of 10 for its profitability.
The stock offers a forward dividend yield of 1.28% as of Friday.
Wall Street issued an overweight recommendation rating for shares of D.R. Horton with an average target price of $58.80.
Lennar
Shares of Lennar Corporation (LEN, Financial) closed at $58.3 on Friday for a market capitalization of $18.06 billion. The Miami, Florida-based homebuilder has an earnings yield of 10.37% versus the industry median of 9.41% and a price-earnings ratio of 9.64 versus the industry median of 10.63.
The stock has increased 38% over the past five years through Dec. 13, but it is still trading cheaply according to the Peter Lynch chart.
Lennar Corporation has received a GuruFocus rating of 4 out of 10 for its financial strength and a rating of 7 out of 10 for its profitability.
The stock offers a forward dividend yield of 0.27% as of Friday.
Wall Street recommends buying shares of Lennar Corporation and has established an average target price of $65.40.
American Airlines
Shares of American Airlines Group Inc. (AAL, Financial) closed at $27.48 on Friday with a market capitalization of $12.04 billion. The Fort Worth, Texas-based passenger and cargo air transportation company has an earnings yield of 12.92% versus the industry median of 6.72% and a price-earnings ratio of 7.74 versus the industry median of 14.87.
The share price has decreased 43.7% over the past five years through Dec. 13 and it is now trading below its fair value according to the Peter Lynch chart.
GuruFocus assigned the company a rating of 3 out of 10 for its financial strengthand a rating of 7 out of 10 for its profitability.
The stock grants a 1.46% forward dividend yield as of Friday.
Shares of American Airlines Group have an overweight recommendation rating and an average target price of $36.72.
Disclosure: I have no positions in any securities mentioned.
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