In order to unearth potential value opportunities in the U.S. market, I have searched for stocks with the following characteristics:
- Their share prices are trading near the Peter Lynch earnings line.
- Their return on invested capital (ROIC) is significantly higher than the weighted average cost of capital (WACC), indicating that the company is using its financial resources in an efficient and profitable way.
- Their stock prices are expected to perform well over the several months ahead, as sell-side analysts on Wall Street have recommended positive ratings for them.
VeriSign Inc
The first stock that holds the above criteria is VeriSign Inc (VRSN, Financial), a Reston, Virginia-based provider of domain name registry services and Internet infrastructure to various recognized domain names worldwide.
The share price of $208.53 as of July 24 is trading above the Peter Lynch earnings line but still in line with the median historical valuation line.
The stock has a market capitalization of $23.95 billion and a 52-week price range of $148.77 to $221.78.
VeriSign Inc has a ROIC of 58.29%, which is almost 10 times the WACC of 5.97%.
Wall Street sell-side analysts estimate that VeriSign Inc’s annual EPS will grow by 27.3% this year to $6.76, up from $5.31 in 2019. The stock has a hold recommendation rating with an average target price of $243.67 per share on Wall Street.
Starbucks Corp
The second stock that qualifies is Starbucks Corp (SBUX, Financial), the Seattle, Washington-based specialty coffee retailer worldwide.
The share price ($75.78 as of July 24), which is above the Peter Lynch earnings line, still trades below the median historical valuation line.
The stock has a market capitalization of $88.53 billion and a 52-week price range of $50.02 to $99.72.
Starbucks Corp has a ROIC of 14.96%, which is nearly three times the WACC of 5.15%.
Wall Street sell-side analysts forecast that Starbucks Corp’s annual EPS will grow by 202.3% to $2.66 in 2021, recovering from 88 cents in 2020. The stock holds an overweight recommendation rating with an average target price of $80.26 per share on Wall Street.
Cadence Design Systems Inc
The third company that possesses the criteria is Cadence Design Systems Inc (CDNS, Financial), a San Jose, California-based provider of application software and hardware worldwide.
The share price ($102.59 as of July 24) trades above the Peter Lynch earnings line but below the median historical valuation line.
The stock has a market capitalization of $28.6 billion and a 52-week range of $51.39 to $106.54.
Cadence Design Systems Inc has a ROIC of 41.64%, which about 5.8 times the WACC of 7.24%.
Wall Street sell-side analysts predict that Cadence Design Systems Inc’s annual EPS will grow by 15.5% this year to $2.54 (up from $2.20 in 2019) and will increase by 7.9% in 2021, reaching $2.74. The stock has an overweight recommendation rating with an average target price of $114.31 per share on Wall Street.
Disclosure: I have no positions in any securities mentioned.
Read more here:
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- 3 High Performing Stocks
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