In order to have higher chances to discover quality securities, investors could screen for the stocks of companies that have solid financial conditions and are expected to boost their profits.
The following stocks trade near or below the Peter Lynch earnings line and have a return on invested capital (aka ROIC) that exceeds the weighted average cost of capital (aka WACC) substantially.
Furthermore, Wall Street sell-side analysts forecast that the following stocks will beat the S&P 500, which is the main benchmark for the U.S. market, significantly in terms of higher earnings per share (EPS) growth in the next five years.
Texas Roadhouse Inc
The first company under consideration is Texas Roadhouse Inc (TXRH, Financial), a Louisville, Kentucky-based operator of casual dining restaurants with activities in the U.S. and internationally.
The share price ($45.87 as of April 24) is trading not far from the Peter Lynch earnings line, indicating that the stock is still not expensive.
The stock has a market capitalization of $3.18 billion and a 52-week price range of $25.15 to $72.49.
Texas Roadhouse has ROIC of 15%, which is more than double the WACC of 7%.
Wall Street sell-side analysts predict that Texas Roadhouse will increase its EPS by 10% on average every year over the next five years, topping the S&P 500, which instead is expected to post 5% growth per year.
Analysts also recommend holding shares of Texas Roadhouse and have established an average price target of $55.40 per share.
Union Pacific Corp
The second company to be under consideration is Union Pacific Corp (UNP, Financial), an Omaha, Nebraska-based railroad transportation services provider.
The share price ($156.09 as of April 24) is trading above the Peter Lynch earnings line but only marginally, which indicates that the stock is still not expensive.
The stock has a market capitalization of $105.92 billion and a 52-week price range of $105.08 to $188.96.
Union Pacific Corp has ROIC of 15%, which is much higher than the WACC of 6.6%.
Wall Street sell-side analysts forecast that Union Pacific Corp will grow the EPS by 10.2% on average every year over the next five years.
Analysts recommend an overweight rating for shares of Union Pacific Corp and have established an average price target of $165.62 per unit.
Colliers International Group Inc
The third company under consideration is Colliers International Group Inc (CIGI, Financial), a Canadian commercial real estate company that provides its services to corporate and institutional clients in North America and internationally.
The share price ($50.24 as of April 24) is currently trading slightly above the Peter Lynch earnings line, which indicates that the stock is still not expensive.
The stock has a market capitalization of $1.99 billion and a 52-week range of $33.93 to $92.07.
Colliers International Group Inc has a ROIC of 14.2%, which is much higher than the WACC of 8.8%.
Wall Street sell-side analysts forecast that Colliers International Group Inc will grow its EPS by 20% every year over the next five years.
As of April, analysts recommended two strong buys, five buys and one hold for this stock with an average target price of $76.80 per share.
Disclosure: I have no positions in any securities mentioned.
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