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Alberto Abaterusso
Alberto Abaterusso
Articles (2616) 

3 Stocks Trading Below Their Earnings Power Values

They are granting margins of safety

December 02, 2020 | About:

When in search of stocks that could be priced fairly, one tool that investors can use is the Earnings Power Value (EPV) metric.

The EPV was designed by Bruce Greenwald, a former professor at Columbia University and a well-known value investor who was looking for ways to circumvent the series of guesswork choices that cannot be avoided when applying the discounted cash flow valuation model. The EPV is calculated as the adjusted earnings divided by the weighted average cost of capital.

The following three stocks appear fairly priced, as their share prices are standing lower than their respective EPVs.

American International Group Inc

The first stock that qualifies is American International Group Inc (NYSE:AIG), a New York-based provider of insurance products to U.S. and international private and commercial customers.

American International Group's EPV is $308.04 per share (as of Sept. 29), which is much higher than the share price of $39.31 at close on Tuesday for a margin of safety of 87.2%.

Following a 23.2% decrease which occurred in the share price over the past year, the market capitalization is $33.87 billion and the 52-week range is $16.07 to $56.42.

GuruFocus has assigned a score of 3 out of 10 to the company's financial strength and of 4 out of 10 to its profitability.

Wall Street sell-side analysts issued an overweight recommendation rating with an average target price of $38.87 per share for the stock.

VANGUARD GROUP INC dominates the group of the company's top fund holders, owning 9.44% of shares outstanding. It is followed by BlackRock Inc. with 9.01% and PRICE T ROWE ASSOCIATES INC /MD/ with 7.99%.

ING Groep NV

The second stock that makes the cut is ING Groep NV (NYSE:ING), a Dutch bank major.

ING Groep NV's EPV is $10.47 per share (as of Sept. 29), which is higher than Tuesday's closing share price of $9.98, yielding a margin of safety of 4.7%.

As a result of an 11.43% decline in the share price which occurred over the past year, the market capitalization now stands at $38.93 billion and the 52-week range is $4.52 to $12.44.

GuruFocus has assigned a score of 3 out of 10 to the company's financial strength rating and of 4 out of 10 to its profitability rating.

Wall Street sell-side analysts issued an overweight recommendation rating for this stock and have established an average target price of $10.17 per share.

The company's top fund holder is Ken Fisher (Trades, Portfolio) with 0.95% of shares outstanding, followed by WELLINGTON MANAGEMENT GROUP LLP with 0.27% and Parametric Portfolio Associates LLC with 0.16%.

Aflac Inc

The third stock that qualifies is Aflac Inc (NYSE:AFL), a Columbus, Georgia-based life insurer.

Aflac's EPV is $141.31 per share (as of Sept. 29), which is much higher than the share price of $44.70 at close on Tuesday, offering a large margin of safety of 68.38%.

Due to a 13.6% fall in the share price that occurred over the past year, the market capitalization now trades at $31.4 billion and the 52-week range is $23.07 to $55.07.

GuruFocus has assigned a score of 5 out of 10 to the financial strength and a score of 6 out of 10 to the profitability of the company.

Wall Street sell-side analysts issued a hold recommendation rating with an average target price of $43.50 per share for this stock.

With 8.59% of shares outstanding, VANGUARD GROUP INC is the company's largest top fundholder, followed by Japan Post Holdings Co., Ltd. with 7.34% of shares outstanding and BlackRock Inc. with 6.73% of shares outstanding.

Disclosure: I have no position in any security mentioned.

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About the author:

Alberto Abaterusso
I am a contributor at GuruFocus. I primarily write about how to pick potential value stocks. Gold, silver and precious metals mining industries is also my cup of tea. 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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