In my opinion, selecting U.S.-listed securities that meet the following characteristics represents a solid starting point when looking for potential value opportunities:
- The shares are trading near or below their historical median valuations.
- The return on invested capital (ROIC) exceeds the weighted average cost of capital (WACC), which suggests the company is creating value for shareholders.
- The stock holds optimistic recommendation ratings on Wall Street.
Thus, investors may be interested in the following stocks, as they meet the above criteria.
PennyMac Financial Services
The first company that meets the criteria is PennyMac Financial Services Inc. (PFSI, Financial), a Westlake Village, California-based provider of mortgage banking and investment management services.
The share price ($65.96 as of March 11) is below the Peter Lynch earnings line ($316.80 as of Dec. 28, 2020) and the median historical valuation line ($131.10 as of Dec. 28, 2020), as the chart below exhibits.
The stock has a market capitalization of $4.57 billion and a 52-week price range of $13.135 to $70.
PennyMac Financial Services Inc has a ROIC of 8.5%, which is four times the WACC of 2%.
As of March, the stock has a median recommendation rating of buy with an average target price of $85.88 per share on Wall Street.
Hibbett Sports
The second stock that qualifies is Hibbett Sports Inc. (HIBB, Financial), a Birmingham, Alabama-based retail chain selling athletic footwear and apparel, team sports equipment and related accessories.
The share price ($64.99 as of March 11) is slightly above the Peter Lynch earnings line ($64.80 as of Jan. 28, 2021), but it is below the median historical valuation line ($78.61 as of Jan. 28, 2021), as the chart below shows.
The stock has a market capitalization of $1.08 billion and a 52-week range of $7.33 to $70.76.
Hibbett Sports Inc has a ROIC of 19.1%, which is almost double the WACC of 11.5%.
On Wall Street, as of March, the stock has a median recommendation rating of overweight and an average target price is $73.33 per share.
Hollysys Automation Technologies
The third stock that matches the criteria is Hollysys Automation Technologies Ltd. (HOLI, Financial), a Chinese provider of automation and control technologies in China, Southeast Asia and the Middle East.
The share price of $14.52 (as of March 11) is trading above the median historical valuation line ($13.93 as of Dec. 28, 2020) but below the Peter Lynch earnings line ($16.65 as of Dec. 28, 2020), as the chart below illustrates.
The stock has a market capitalization of $883.62 million and a 52-week price range of $9.52 to $16.31.
Hollysys Automation has a ROIC of 14%, which is twice the WACC of 7%.
On Wall Street, as of March, the stock has a median recommendation rating of overweight and an average target price of $19.46 per share.
Disclosure: I have no positions in any securities mentioned.
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