When looking for bargain opportunities, one method is to search for stocks whose share prices are trading near or below the intrinsic value estimated by the GuruFocus Value Line. This unique intrinsic value calculation from GuruFocus considers the following three components:
- The stock's historical multiples such as the price-earnings (PE) ratio, the price-sales (PS) ratio, the price-book (PB) ratio and the price-to-free-cash-flow (PFCF) ratio.
- A GuruFocus adjustment factor based on past returns and growth of the company.
- Estimations of future business performance.
Thus, value investors may want to consider the following three securities, as they are undervalued according to the GF Value.
American Equity Investment Life Holding Co
The first stock that meets the above criteria is American Equity Investment Life Holding Co (AEL, Financial), a West Des Moines, Iowa-based provider of life insurance products and services to individuals in the United States.
American Equity Investment Life Holding Co's share price was $27.48 at close on Wednesday while its GF Value stands at $27.01, resulting in a price-to-GF-value ratio of 1.02 and a rating of "fairly valued."
The stock has a market capitalization of $2.73 billion after an 8.2% decrease that occurred over the past year. The 52-week range is $9.07 to $34.25, the price-earnings ratio is 2.93 (versus the industry median of 13.13) and the price-book ratio is 0.41 (versus the industry median of 1.09). Also, the price-sales ratio is 0.6 (versus the industry median of 1.07) and the price-to-free-cash-flow ratio is 1.8 (versus the industry median of 7.9). The stock has a GuruFocus profitability rating of 5 out of 10.
Concerning future business performance, sell-side analysts on Wall Street forecast that earnings per share will move up by an average growth rate of 10% per annum over the next five years. As of December, the stock has four buy recommendation ratings and six hold recommendation ratings for an average target price of $30.44 per share.
Manulife Financial Corp
The second stock that meets the above criteria is Manulife Financial Corp (MFC, Financial), a Canadian insurance and asset management company serving individuals and institutional clients in North America and internationally.
Manulife Financial Corp's share price was $17.64 at close on Wednesday compared to its GF Value of $20.95, resulting in a price-to-GF-value ratio of 0.84 and a rating of "modestly undervalued."
The stock has a market capitalization of $34 billion as a result of a 13% decrease that took place over the past year. The 52-week range is $8.62 to $21.23, the price-earnings ratio is 8.53 (versus the industry median of 13.13) and the price-book ratio is 0.9 (versus the industry median of 1.09). The price-sales ratio is 0.62 (compared to the industry median of 1.07) and the price-to-free-cash-flow ratio is 2.37 (versus the industry median of 7.9). The GuruFocus profitability rating is 5 out of 10.
Concerning future business performance, sell-side analysts on Wall Street predict that the earnings per share will increase by 8.8% per annum over the next five years. As of December, the stock has one strong buy recommendation rating and one buy recommendation rating for an average target price of $23.61 per share.
Pampa Energia SA
The third stock that meets the above criteria is Pampa Energia SA (PAM, Financial), an Argentinian generator and distributor of electricity to regulated markets in Argentina.
Pampa Energia SA's share price was trading at $13.69 at close on Wednesday compared to the GF Value of $16.30. Thus, Pampa Energia's price-to-GF-value ratio is 0.84, and the stock earns a rating of "fairly valued."
The stock has a market capitalization of $797.03 million after a 16.7% fall which happened over the past year. The 52-week range is $8.72 to $16.69, the price-earnings ratio is 14.69 (compared to the industry median of 17.02) and the price-book ratio is 0.78 (versus the industry median of 1.5). Furthermore, the price-sales ratio is 0.69 (compared to the industry median of 1.48) and the price-to-free-cash-flow ratio is 1.64 (versus the industry median of 14.06). GuruFocus has assigned the stock a profitability rating of 6 out of 10.
With regards to future business performance, sell-side analysts on Wall Street estimate that the earnings per share will grow by 7.6% per annum over the next five years. As of December, the stock has two buy recommendation ratings and two hold recommendation ratings for an average target price of $14.97 per share.
Disclosure: I have no position in any security mentioned.
Read more here:
- 3 Magic Formula Stock Picks for the Value Investor
- A Trio of Stocks Trading Below Intrinsic Value
- A Trio of Stock Picks for the 'Buy and Hold' Approach
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