In order to uncover securities that hold a high potential to deliver superior returns, you may find it helpful to search for fairly priced stocks of companies that have solid financial conditions and are expected to grow their earnings.
Thus, I searched for stocks trading below or near the Peter Lynch earnings line which have a return on invested capital (aka ROIC) that surpasses the weighted average cost of capital (aka WACC) significantly.
Furthermore, Wall Street sell-side analysts forecast that the following stocks will do at least as well as the S&P 500 index in terms of earnings per share (aka EPS) growth over the next five years.
adidas AG
The first stock that meets the above-listed criteria is adidas AG (ADDDF, Financial), a German designer, producer and marketer of athletic and sports lifestyle products.
The share price ($207.75 at close on Monday) trades close to the Peter Lynch earnings line, which indicates that this stock is still fairly priced.
The stock has a market capitalization of $38.4 billion and a 52-week price range of $172.8 to $357.
adidas AG has a return on invested capital of 31.54%, which is more than six times the weighted average cost of capital of 4.91%.
Wall Street analysts estimate that adidas AG will grow its EPS by 9.23% every year over the next five years compared to the S&P 500’s growth rate of 8%.
Analysts issued an overweight recommendation rating for this stock with an average price target of $262.59, which reflects a 26.4% upside from Monday’s closing price.
NewMarket
The second stock that meets the above-listed criteria is NewMarket Corp (NEU, Financial), a Richmond, Virginia-based specialty chemicals company.
The share price ($372.24 at close on Monday) trades close to the Peter Lynch earnings line, which indicates that the stock is still fairly priced.
The stock has a market capitalization of $4.17 billion and a 52-week price range of $350.75 to $505.16.
NewMarket Corp has a return on invested capital of 20.73%, which is more than six times the weighted average cost of capital of 3.18%.
Wall Street sell-side analysts forecast that NewMarket Corp will grow the EPS by a yearly average of 7.7% over the next five years. This growth rate is not far from the 8% rate of the S&P 500.
Sell-side analysts also issued a hold recommendation rating for this stock with an average share price target of $450, representing 21% growth to hit within a year.
Zebra Technologies
The third stock that meets the above-listed criteria is Zebra Technologies Corp (ZBRA, Financial), a Lincolnshire, Illinois-based global manufacturer and seller of automatic identification and data capture products.
Currently, the share price ($166.08 as of Monday) trades near the Peter Lynch earnings line, indicating that the stock is still priced fairly.
The stock has a market capitalization of $8.97 billion and a 52-week range of $150.06 to $260.40.
Zebra Technologies’ return on invested capital of 20.6% covers the weighted average cost of capital of 9.84.
Wall Street analysts estimate that Zebra will grow its EPS by 10% every year over the next five years compared to the S&P 500 growth rate of 8%.
The stock has an overweight recommendation rating and an average target price of $270.75, which reflects a 63% upside to hit within a year.
Disclosure: I have no positions in any securities mentioned.
Read more here:
- 3 Stocks Growing Their Earnings Fast
- A Trio of High-Quality Stocks for the Value Investor
- Wall Street Suggests Catching These 2 Falling Knives
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