One strategy to enhance the likelihood to come across profitable investments is to look for reasonably priced stocks of companies showing strong financials that are expected to increase their earnings per share (EPS) significantly.
Thus, investors may be interested in the following stocks, as they trade near their historical median valuations and have a return on invested capital (aka ROIC) that exceeds the weighted average cost of capital (aka WACC), indicating profitable operations. Furthermore, sell-side analysts on Wall Street have recommended positive ratings for these companies on optimistic expectations of future earnings.
Facebook Inc
The first stock that qualifies is Facebook Inc FB, a Menlo Park, California-based global social media giant.
The share price of $302.50 (as of Sept. 2) is trading above the Peter Lynch earnings line, but still significantly below the median historical valuation line, as the chart illustrates.
The stock has a market capitalization of $861.77 billion and a 52-week price range of $137.10 to $304.67.
Facebook has a return on invested capital of 34%, which is almost four times the weighted average cost of capital of 8.7%.
Wall Street sell-side analysts predict that Facebook's EPS will grow by 24.4% this year, 26.5% next year and 17% every year over the next five years. As of September, the stock has 17 strong buy recommendations, 24 buy recommendations, one hold recommendation, one underperform and one sell recommendation rating. The average target price stands at $285.57 per share.
Eli Lilly and Co
The second company that makes the cut is Eli Lilly and Co LLY, an Indianapolis-based drug giant.
The share price ($149.55 as of Sept. 2) is above the Peter Lynch earnings line but on par with the median historical valuation line.
The stock has a market capitalization of $143.04 billion and a 52-week price range of $101.36 to $170.75.
Eli Lilly and Co has a ROIC of 16.57%, which is almost nine times the WACC of 1.87%.
Wall Street sell-side analysts predict that Eli Lilly's EPS will grow by 19.4% this year, 10.8% in 2021 and 13.17% every year over the next five years. The stock has four strong buy recommendation ratings, nine buy recommendation ratings, eight hold recommendation ratings and one underperform recommendation rating. The average target price is $165.07 per share.
Revolve Group Inc
The third stock that meets the criteria is Revolve Group Inc RVLV, a Cerritos, California-based operator of an online fashion retailer in the U.S. and internationally.
The share price ($21.49 as of Sept. 2) trades above the Peter Lynch earnings line but below the median historical valuation line, as the chart shows.
The stock has a market capitalization of $1.49 billion and a 52-week range of $7.17 to $48.36.
Revolve Group Inc has a ROIC of 32.58%, while the WACC is 0.00%.
Wall Street sell-side analysts forecast that Revolve will grow its EPS by 2% this year, 33.3% next year and 24.11% every year over the next five years. Currently, the stock has seven buy recommendation ratings and seven hold recommendation ratings for a price target averaging $24.67 per share.
Disclosure: I have no positions in any securities mentioned.
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