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Alberto Abaterusso
Alberto Abaterusso
Articles (2530) 

A Trio of Non-Cyclical Stocks for the Value Investor

Their earnings yields beat the US stock market's historical high

December 11, 2020 | About:

Investors who are in search of high return investments might be interested in the three non-cyclical stocks listed below, as their earnings yields (as calculated via Joel Greenblatt's method) are outperforming the U.S. market.

Greenblatt calculates the earnings yield as the company's earnings before interest and tax (EBIT) divided by its enterprise value. This ratio represents a more reliable reference for the appraisal of non-cyclical stocks, whose earnings have little or no correlation with the business cycle (as the metric only looks at 12 months of business operations).

As of the writing of this article, the S&P 500's mean historical earnings yield is 9.5% (the highest over the past six and a half years) is considered as a benchmark. The stock picks below are beating the S&P 500 in terms of a higher earnings yield than 9.5%.

Centene Corp

The first stock to consider is Centene Corp (NYSE:CNC), a St. Louis, Missouri-based provider of multi-national healthcare plans and services to under-insured and uninsured U.S. individuals.

The stock offers an earnings yield of 9.84% as of the most recent quarter. This stands above the middle point of the past 10-year historical earnings yield range of 3.2% to 22.7%. Centene Corp's earnings yield ranks higher than 74% of 19 companies that are operating in the healthcare plans industry.

The share price traded at around $61.31 at close on Thursday for a market capitalization of $35.55 billion and a 52-week range of $43.96 to $74.70. The stock increased 4.77% over the past year.

Its price-earnings ratio is 17.08 (which is in line with the industry median), the price-book ratio is 1.38 (versus the industry median of 2.31) and the price-sales ratio is 0.33 (versus the industry median of 0.71).

Currently, Centene Corp does not pay dividends to its shareholders.

GuruFocus assigned a score of 6 out of 10 to the company's financial strength rating and of 8 out of 10 to its profitability rating.

As of December, Wall Street sell-side analysts recommend five strong buy recommendation ratings, seven buy recommendation ratings and five hold recommendation ratings for the stock with an average target price of $82.92 per share. They also expect a rising EPS over the next five years at an average pace of 13.04% per annum.

Among the top fund holders of the company, The Vanguard Group Inc. dominates with 10.79% of shares outstanding. It is followed by Blackrock Inc. with 7.02% of shares outstanding and Price T. Rowe Associates Inc with 6.94% of shares outstanding.

BellRing Brands Inc

The second stock to consider is BellRing Brands Inc (NYSE:BRBR), a St. Louis, Missouri-based manufacturer and seller of various ready-to-drink protein shake beverages, powders and nutrition bars and supplements in the U.S. and internationally.

The company offers an earnings yield of 11.26% as of the most recent quarter. BellRing's current earnings yield stands slightly below the middle point of the 10-year historical range of 9.7% to 13.1% and ranks higher than 81% of companies that are operating in the consumer packaged goods industry.

The share price was trading at around $24.69 at close on Thursday for a market capitalization of $973.49 million and a 52-week range of $13.56 to $25.32. The stock has risen by 18.3% over the past year.

Its price-earnings ratio is 41.83 (versus the industry median of 19.66) and the price-sales ratio is 1 (versus the industry median of 1.05).

Currently, BellRing Brands Inc does not pay dividends to its shareholders.

GuruFocus assigned a score of 2 out of 10 to the company's financial strength rating and of 5 out of 10 to its profitability rating.

Wall Street sell-side analysts issued 16 recommendation ratings ranging between hold and strong buy and have established an average target price of $25.13 per share. Concerning the company's future EPS, Wall Street projects a 21.32% annual growth over the next five years.

Route One Investment Company, L.P., leads the group of top fund holders of the company, owning 13.1% of shares outstanding. It is followed by VICTORY CAPITAL MANAGEMENT INC with 9.13% of shares outstanding and WELLINGTON MANAGEMENT GROUP LLP with 8.65% of shares outstanding.

Big Lots Inc

The third stock to consider is Big Lots Inc (NYSE:BIG), a Columbus, Ohio-based operator of discount stores in the U.S.

The company offers an earnings yield of 28.99% as of the most recent quarter. Currently, Big Lots' earnings yield stands above the middle point of the 10-year historical range of 6.3% to 43% and ranks higher than 95% of 293 companies that are operating in the retail - defensive industry.

The share price closed at $46.51 on Thursday for a market capitalization of $1.73 billion and a 52-week range of $10.13 to $57.24. The stock has climbed 64.87% over the past year.

Its price-earnings ratio is 2.96 (versus the industry median of 18.3), the price-book ratio is 1.45 (versus the industry median of 1.84) and the price-sales ratio is 0.3 (versus the industry median of 0.44).

The company is a dividend payer. It is currently distributing a quarterly cash dividend of 30 cents per common share with the next payment to issue to the shareholders on Dec. 30. The payment generates a forward dividend yield of 2.58% as of Dec. 10.

GuruFocus assigned a score of 6 out of 10 to the company's financial strength rating and of 8 out of 10 to its profitability rating.

As of December, Wall Street sell-side analysts recommend four strong buy recommendation ratings,six buy recommendation ratings and six hold recommendation ratings for the stock with an average target price of $57.22 per share. They have also forecasted that the company will increase the EPS by 8.91% per annum over the next five years.

BlackRock Inc. and VANGUARD GROUP INC are the largest top fund holders of the company, holding 14.61% and 11.76%, respectively.

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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