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Alberto Abaterusso
Alberto Abaterusso
Articles (2327) 

A Trio of Stocks for the Value Investor

These strong businesses have potential

September 23, 2020 | About:

In order to have a higher likelihood of discovering potential value opportunities in the U.S. market, investors may want to consider stocks with the following characteristics:

  • The share prices are trading close to their historical median valuations.
  • The return on invested capital exceeds the weighted average cost of capital significantly, which suggests the company is using its financial resources in an efficient and profitable way.
  • The stock performance is foreseen to improve in the future as they have optimistic recommendation ratings on Wall Street.

Thus, investors may be interested in the following stocks, as they meet these criteria.

Oracle Corp

The first stock that makes the cut is Oracle Corp (NYSE:ORCL), an American global software technology giant based in Redwood City, California.

The share price of $60.62 (as of Sept. 22) is trading above the Peter Lynch earnings line but near the median historical valuation line, as the chart below shows.

The stock has a market capitalization of $182.52 billion and a 52-week price range of $39.71 to $62.60.

Oracle Corp has a return on invested capital of 15%, which is more than three times the weighted average cost of capital of 4.7%.

Wall Street sell-side analysts forecast that Oracle's EPS will grow by 9.6% this year, 8.3% in 2021 and 9.2% every year over the next five years. As of September, the stock has 10 strong buy recommendations, 16 buy recommendations, nine hold recommendations and one sell recommendation rating. The average target price is $62.99 per share.

Lowe's Companies Inc

The second company that meets the criteria is Lowe's Companies Inc (NYSE:LOW), a Mooresville, North Carolina-based home improvement retailer in North America and Mexico.

The share price ($161.55 as of Sept. 22) is above the Peter Lynch earnings line but close to the median historical valuation line.

The stock has a market capitalization of $122.09 billion and a 52-week price range of $60 to $171.72.

Lowe's Companies Inc has a ROIC of 20.3%, which is more than twice the WACC of 8.9%.

Wall Street sell-side analysts predict that after a 48.3% increase in Lowe's Companies' EPS to $8.53 this year, EPS will decrease slightly next year to $8.51. EPS is expected to increase by 21.8% per annum over the next five years. As of September, the stock has eight strong buy recommendation ratings, 10 buy recommendation ratings, 13 hold recommendation ratings and one sell recommendation rating. The average target price is $181.31 per share.

Maxim Integrated Products Inc

The third stock that qualifies is Maxim Integrated Products Inc (NASDAQ:MXIM), a San Jose, California-based seller of integrated circuits in North America and internationally.

The share price ($65.83 as of Sept. 22) trades above the Peter Lynch earnings line but not far from the median historical valuation line.

The stock has a market capitalization of $17.58 billion and a 52-week range of $41.93 to $73.52.

Maxim Integrated Products Inc has a ROIC of 41.2%, which is five times the WACC of 7.7%.

Wall Street sell-side analysts forecast that Maxim Integrated Products Inc's EPS will grow by 8.4% this year, 10.6% next year and 6% every year over the next five years. As of September, the stock has three strong buy recommendation ratings, eight buy recommendation ratings, 14 hold recommendation ratings and one underperform recommendation rating. The average price target stands at $72.51 per share.

Disclosure: I have no positions in any securities mentioned.

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About the author:

Alberto Abaterusso
I am a contributor at GuruFocus. I primarily write about gold, silver and precious metals mining industries. My articles have also been widely linked by popular sites, including MarketWatch, Financial Times, 24hGold, Investopedia, Financial.org, CNBS, MSN Money, Zachs, Reuters and others. I hold a Master's Degree in Business Administration from Università degli Studi di Bari (Italy), Aldo Moro. I am based in The Netherlands.

You can follow me on Twitter at https://twitter.com/AAbaterusso

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