Investors can use the Earnings Power Value (EPV) metric to assess whether or not a stock is fairly priced by the market.
The creation of the EPV metric has been attributed to Bruce Greenwald, a professor at Columbia University and one of the most famous value investors. Greenwald was looking for ways to bypass the series of guesswork choices that are necessary when applying the discounted cash flow valuation model. The EPV is calculated as the adjusted earnings divided by the weighted average cost of capital.
Below are three stocks that appear to be fairly priced, as their share prices are trading below their respective EPVs.
Truist Financial Corp
The first stock that meets the criteria is Truist Financial Corp TFC, a Charlotte, North Carolina-based regional bank serving individuals, small and mid-size businesses, private and public organizations in the Southeastern and Mid-Atlantic United States.
Truist Financial Corp's EPV is $53.84 per share (as of Sept. 29), which is higher compared to the share price of $44.93 at close on Thursday for a margin of safety of 16.56%.
Following an 18% decline that occurred in the share price over the past year, the market capitalization is $60.57 billion. The 52-week range is $24.01 to $56.92.
GuruFocus has assigned a score of 3 out of 10 to the company's financial strength and 4 out of 10 to its profitability.
On Wall Street, the stock has an overweight recommendation rating with an average target price of $46.19 per share.
VANGUARD GROUP INC leads the group of the company's top fund holders with 8.11% of shares outstanding. It is followed by BlackRock Inc. with 6.57% of shares outstanding and by Capital International Investors with 6.10%.
Mitsubishi UFJ Financial Group Inc
The second stock that qualifies is Mitsubishi UFJ Financial Group Inc MUFG, a Japanese bank holding company providing various financial services to its clients in Japan and other Asian countries, as well as in the U.S. and Oceania.
Mitsubishi UFJ Financial Group Inc's EPV was $53.53 per share as of the most recent full fiscal year (which ended on March 29). It is still much higher compared to the share price of $4.11 at close Thursday for a margin of safety of 92.3%.
As a result of a 23.5% decline that the share price suffered over the past year, the market capitalization is now $52.79 billion and the 52-week range is $3.32 to $5.54.
GuruFocus has assigned a score of 3 out of 10 to both the company's financial strength rating and its profitability rating.
On Wall Street, the stock has an overweight recommendation rating with an average target price of $5.36 per share.
Aristotle Capital Management, LLC leads the group of top fund holders of the company, holding 0.50% of shares outstanding.
Bank of Nova Scotia
The third stock that makes the cut is Bank of Nova Scotia BNS, a Toronto, Canada-based provider of various banking products and services in the Americas and internationally.
Bank of Nova Scotia's EPV is $79.65 per share (as of July 30), which is above the share price of $43.40 at close on Thursday, for a margin of safety of 45.51%.
After a nearly 25% decline that the share price endured over the past year, the market capitalization now trades at $52.35 billion and the 52-week range is $31.94 to $58.22.
GuruFocus has assigned a score of 4 out of 10 to both the financial strength rating and the profitability rating of the company.
On Wall Street, the stock has a buy recommendation rating with an average target price of $51 per share.
ROYAL BANK OF CANADA dominates the group of top fund holders of the company, owning 9.42% of shares outstanding. It is followed by BANK OF MONTREAL /CAN/ with 4.51% and by VANGUARD GROUP INC with 3.04%.
Disclosure: I have no position in any security mentioned.
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