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Alberto Abaterusso
Alberto Abaterusso
Articles (2624) 

A Trio of Stocks Trading Below Their Earnings Power Values

They yield substantial margins of safety

January 21, 2021 | About:

When in search of stocks that are trading at fair prices, one tool 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 prominent value investor who was looking for ways to avoid the series of guesswork choices that must be made 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 seem to be fairly priced, as their share prices are standing lower than their respective EPVs.

Industrial and Commercial Bank of China Ltd.

The first stock that qualifies is Industrial and Commercial Bank of China Ltd. (IDCBY), a Chinese bank providing various financial products and services to individuals and businesses.

Industrial and Commercial Bank of China's EPV is $26.02 per share (as of Sept. 30), which is much higher than the share price of $13.24 at close on Wednesday for a margin of safety of 49.12%.

Following an 8.86% share price decrease which happened over the past year, the market capitalization is $235.94 billion and the 52-week range is $10.16 to $14.64.

GuruFocus has assigned a score of 5 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 $15.79 per share for the stock.

Parametric Portfolio Associates LLC dominates the group of the company's top fund holders, owning 514,191 shares. It is followed by Lenox Wealth Management, Inc. with 81,518 shares and Intercontinental Wealth Advisors, LLC with 23,086 shares.

Banco Santander SA

The second stock that makes the cut is Banco Santander SA (NYSE:SAN), a Madrid, Spain-based bank providing various retail and commercial banking products and related services to individuals and businesses globally.

Banco Santander's EPV is $15.86 per share (as of Sept. 30), which is higher than
Wednesday's closing share price of $3.27, yielding a margin of safety of 79.39%.

Due to a 13.83% decline in the share price which occurred over the past year, the market capitalization now stands at $56.61 billion and the 52-week range is $1.78 to $4.26.

GuruFocus has assigned a score of 3 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 an overweight recommendation rating for this stock and have established an average target price of $3.50 per share.

The company's top fund holder is Ken Fisher (Trades, Portfolio) with 0.55% of shares outstanding.

Limestone Bancorp Inc

The third stock that qualifies is Limestone Bancorp Inc (NASDAQ:LMST), a Louisville, Kentucky-based regional bank providing a range of banking products and other financial services to individuals and businesses.

Limestone Bancorp's EPV is $18.78 per share (as of Sept. 30), which is much higher than the share price of $13.25 at close on Wednesday, granting a wide margin of safety of 29.45%.

Following a 24% fall in the share price that occurred over the past year, the market capitalization now stands at around $99.38 million and the 52-week range is $6.83 to $17.35.

GuruFocus has assigned a score of 3 out of 10 to the financial strength and a score of 2 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 $12 per share for this stock.

With 4.65% of shares outstanding, Banc Funds Co LLC is the company's largest top fundholder, followed by EJF Capital LLC with 4.01% and Patriot Financial Partners GP, LP with 3.89%.

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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