One way to increase the chances of finding high-quality investments is to look for fairly priced stocks of companies that have good financial conditions and are expected to improve their net earnings per share.
Therefore, I screened stocks on the U.S. market for stocks which are trading below or near the Peter Lynch earnings line and have a return on invested capital (ROIC) surpassing the weighted average cost of capital (WACC). When ROIC surpasses WACC, it means that the business is yielding more than what it costs to raise the necessary funds. This is typical of a company with a solid and well-structured balance sheet. In addition, analysts predict that the following stocks will improve thier bottom lines over the next couple of years.
Coherus BioSciences Inc
The first company to consider is Coherus BioSciences Inc (CHRS, Financial), a Redwood City, California-based biotech focusing on biosimilar therapies worldwide.
The share price ($17.24 as of May 20) trades below the Peter Lynch earnings line, indicating that the stock is fairly priced.
The stock has a market capitalization of $1.22 billion and a 52-week price range of $10.86 to $23.91.
Coherus BioSciences has a ROIC of 151.4%, which is almost twenty times the WACC of 7.9%.
Wall Street sell-side analysts predict Coherus BioSciences’ annual EPS to increase by 23% every year over the next five years, beating the S&P 500, which is expected to post 4% EPS growth per year over the next five years.
As of May, two analysts recommended a strong buy rating and six analysts recommended a buy rating for the stock. The average target price is $30.75 per share.
Deckers Outdoor Corp
The second company to consider is Deckers Outdoor Corp (DECK, Financial), a Goleta, California-based designer and distributor of casual and high performing footwear and apparel.
The share price ($162.51 as of May 20) trades close to the Peter Lynch earnings line, which indicates that the stock is priced fairly.
The stock has a market capitalization of $4.55 billion and a 52-week price range of $78.70 to $203.19.
Deckers Outdoor has a ROIC of 34.6%, which is more than five times the WACC of 6.5%.
Wall Street sell-side analysts predict that Deckers Outdoor will grow the annual EPS by a yearly average of 16.3% over the next five years.
As of May, four Wall Street sell-side analysts recommended a strong buy rating, one analyst recommended a buy rating, 10 analysts recommended a hold rating and one analyst issued an underperform rating. The average price target is $185.67 per share.
Grupo Aeroportuario del Centro Norte SAB de CV
The third company to consider is Grupo Aeroportuario del Centro Norte SAB de CV (OMAB, Financial), a Mexican operator of international airports.
The share price ($31.13 as of May 20) currently trades below the Peter Lynch earnings line, indicating the stock is fairly priced.
The stock has a market capitalization of $1.52 billion and a 52-week range of $20.55 to $67.07.
Grupo Aeroportuario del Centro Norte has a ROIC of 26.8%, which is almost twice the WACC of 14.7%.
Wall Street sell-side analysts predict that Grupo Aeroportuario del Centro Norte will grow its EPS by more than 10% next year and 3% every year over the next five years.
As of May, the stock has received one strong buy rating, one buy rating, five hold ratings and one underperform rating from Wall Street. The average target price is $44.94 per share.
Disclosure: I have no positions in any securities mentioned.
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