In order to uncover value opportunities, investors may want to pick stocks whose earnings yields have more than doubled the returns of 20-year high-quality market corporate bonds.
These bonds grant their holders a 3.51% monthly spot rate. Also, as these securities correspond to corporate loans issued by triple-A, double-A and single-A-rated companies, they imply a very low investment risk for both bondholders and shareholders.
The following stocks may represent an opportunity for investors, as they have recently topped the spot rate for 20-year high-quality market corporate bonds, showing an earnings return of more than 7.02%.
TD Ameritrade
The first company to consider is TD Ameritrade Holding Corporation (AMTD, Financial).
Shares of the Omaha, Nebraska-based securities broker and financial services provider closed at $50.53 per unit on Jan. 20 for a market capitalization of $27.31 billion.
The stock offers an earnings yield of 7.84% versus the industry median of 5.7% and a price-earnings ratio of 12.76 versus the industry median of 17.58.
The stock has grown 48.6% over the past five years through Jan. 20. Nonetheless, it is still trading below the Peter Lynch earnings line.
GuruFocus assigned a rating of 3 out of 10 for the company’s financial strength rating and of 5 out of 10 for its profitability.
The stock grants a forward dividend yield of 2.45% as of Monday versus the S&P 500's yield of 1.75%. Wall Street recommends a hold rating with a price target of $52.42 per share.
Farmers & Merchants Bancorp
The second company to consider is Farmers & Merchants Bancorp (FMCB, Financial).
Shares of the Lodi, California-based holding company of Farmers & Merchants Bank of Central California closed at $774.99 on Monday for a market capitalization of $610.16 million.
The stock has an earnings yield of 8.9% versus the industry median of 8.3% and a price-earnings ratio of 11.2 versus the industry median of 12.
The stock price has risen 67.4% over the past five years. Regardless of this substantial growth, the share price is still below the Peter Lynch earnings line.
Farmers & Merchants Bancorp has received a GuruFocus rating of 5 out of 10 for its financial strength and 4 out of 10 for its profitability.
The stock grants a forward dividend yield of 1.85% as of Monday versus the S&P 500's yield of 1.75%.
Alico Inc
The third company to consider is Alico Inc (ALCO, Financial).
Shares of the Fort Myers, Florida-based operator of agribusinesses and land management companies closed at $37.29 on Monday with a market capitalization of $278.75 million.
The stock has an earnings yield of 13.6% compared to the industry median of 8.3% and a price-earnings ratio of 7.38 versus the industry median of 20.02.
The stock price has fallen nearly 29% in the past five years through Jan. 20. As a result, its share price is below the Peter Lynch earnings line.
GuruFocus assigned the company a rating of 5 out of 10 for its financial strength and a rating of 6 out of 10 for its profitability.
The stock has been paying dividends for almost four decades. It grants a forward dividend yield of 0.97% as of Monday.
Disclosure: I have no positions in any securities mentioned.
Read more here:
- 3 Reasonably Priced Large Caps
- Consider These 3 Fast-Growing Small Caps
- A Trio of Value Opportunities for Investors
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