In order to find reasonably priced stocks of strong businesses that are capable of generating high returns for shareholders, I looked for stocks with the following characteristics:
1) Their share prices trade below the Peter Lynch earnings line.
2) Their return on invested capital (aka ROIC) ratio surpasses the weighted average cost of capital (aka WACC) significantly.
3) Their annual earnings per share (aka EPS) is expected to grow faster than the U.S. market over the next five years.
Crown Holdings
The first stock investors may want to consider is Crown Holdings Inc (CCK, Financial), a Yardley, Pennsylvania-based designer, manufacturer and seller of packaging products and equipment for consumer goods and industrial products in the U.S. and internationally.
The share price ($58.06 at close on Thursday ) trades slightly below the Peter Lynch earnings line, suggesting the stock is still reasonably priced.
The stock has a market cap of $7.88 billion and a 52-week price range of $42.97 to $80.57.
Crown Holdings has a return on invested capital of 9.44%, which is significantly higher than the weighted average cost of capital of 6.19%.
Wall Street sell-side analysts estimate that Crown Holdings will grow its EPS by 8.82% on average every year over the next five years, while the S&P 500 is expected to grow its EPS by 6% per year.
Analysts issued a buy recommendation rating for this stock and have established an average price target of $80.27.
Capgemini SE
The second stock that investors should have a look at is Capgemini SE (CGEMY, Financial), a French provider of technology and digital transformation services.
The share price ($17.45 at close on Thursday ) trades slightly below the Peter Lynch earnings line, which indicates that the stock is reasonably priced.
The stock has a market cap of $14.46 billion and a 52-week price range of $10.98 to $26.30.
Capgemini SE has a return on invested capital of 10.39%, which surpasses the weighted average cost of capital of 6.07%.
Wall Street sell-side analysts estimate that Capgemini SE will grow its annual EPS by 6.7% on average over the next five years.
Analysts issued a buy recommendation rating for this stock and have set an average price target of $25.09 per share.
Barnes Group
The third stock that investors may want to consider is Barnes Group Inc (B, Financial), a Bristol, Connecticut-based supplier of products and solutions for U.S. and international industrial and aerospace clients.
The share price ($43.20 as of Thursday ) currently trades below the Peter Lynch earnings line, indicating that the stock is fairly priced.
The stock has a market cap of $2.2 billion and a 52-week range of $30.22 to $68.60.
Barnes Group has a return on invested capital of 8.93%, which is above the weighted average cost of capital of 7.85%.
Wall Street sell-side analysts estimate that Barnes Group will grow its EPS by 10% every year over the next five years.
Analysts issued an overweight recommendation rating and have established an average target price of $63.
Disclosure: I have no positions in any securities mentioned.
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