To find value opportunities, investors may want to look for stocks that grant earnings yields that more than double the returns of 20-year high-quality market corporate bonds. Holders of these bonds receive a 3.51% monthly spot rate.
These bonds represent corporate loans issued by triple-A, double-A and single-A-rated companies, implying a very low investment risk for both bondholders and shareholders.
As a result, the following stocks, which have a have a price-earnings ratio of less than 14.25 and whose stocks have recently outperformed the spot rate for 20-year high-quality market bonds, may present valuable opportunities for investors.
Companhia de Saneamento Basico
Shares of Companhia de Saneamento Basico do Estado de Sao Paulo (SBS, Financial) closed at $14.98 on Thursday, Jan. 2 for a market capitalization of $10.24 billion. The Brazilian provider of treated water, sanitation and liquid waste services has an earnings yield of 9.3% versus the industry median of 6% and a price-earnings ratio of 10.72 versus the industry median of 16.66.
The stock price is up nearly 145% over the past five years. However, shares still seem to be cheap based on the Peter Lynch chart.
The company has received a GuruFocus rating of 5 out of 10 for its financial strength and 9 out of 10 for its profitability.
The stock grants a forward dividend yield of 2% as of Thursday.
The stock has an overweight recommendation rating from Wall Street analysts and an average target price of $14.93 per share.
Warrior Met Coal
Shares of Warrior Met Coal Inc. (HCC, Financial) closed at $21.63 on Thursday for a market capitalization of $1.1 billion.
The Brookwood, Alabama-based producer and exporter of metallurgical coal to steel companies has an earnings yield of 58.1%, which is far above the industry median of 9.8%. The price-earnings ratio is 1.72 compared to the industry median of 10.23.
The stock is cheap according to the following Peter Lynch chart, regardless of a five-year increase of 20.2%.
The stock offers a forward dividend yield of 0.92% as of Thursday.
Wall Street sell-side analysts issued an overweight recommendation rating for shares of Warrior Met Coal with an average target price of $27.88.
Civista Bancshares
Shares of Civista Bancshares Inc. (CIVB, Financial) closed at $24.07 on Thursday for a market capitalization of $372.59 million. The company is based in Sandusky, Ohio and operates as the holding of a regional bank. The stock has an earnings yield of 8.26% versus the industry median of 8.31% and a price-earnings ratio of 12.1 versus the industry median of 12.03.
Even though the stock has risen 134.4% over the past five years through Jan. 2, it is still trading cheaply based on the Peter Lynch chart.
GuruFocus assigned a rating of 2 out of 10 for the company's financial strength and a rating of 4 out of 10 for its profitability.
The stock grants a forward dividend yield of 1.84% as of Thursday.
Wall Street issued an overweight recommendation rating for shares of Civista Bancshares with an average target price of $25.88.
Disclosure: I have no positions in any securities mentioned.
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