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5 Peter Lynch Stocks to Consider in July

Stocks trading below the guru's earnings line

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James Li
Jul 02, 2021

Summary

  • Peter Lynch set his earnings line at 15 times earnings per share.
  • GuruFocus’ Peter Lynch Screen lists the undervalued stocks based on Lynch’s principle.
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According to the Peter Lynch Screen, one of several Premium GuruFocus value screens, five stocks with high profitability and business predictability that are trading below the Peter Lynch earnings line are D.R. Horton Inc. (

DHI, Financial), Lennar Corp. (LEN, Financial)(LEN.B, Financial), Progressive Corp. (PGR, Financial), First American Financial Corp. (FAF, Financial) and Educational Development Corp. (EDUC, Financial).

Lynch, the legendary Fidelity Magellan Fund manager, established a simple rule to determine if a stock is undervalued or overvalued: compare the company’s share price to 15 times its earnings per share. If the price trades above the earnings line, the stock is considered overvalued. Likewise, if the price trades below the earnings line, the stock is considered undervalued.

As such, investors may find opportunities in stocks meeting Lynch’s criteria. Table 1 lists the total number of Peter Lynch Screener stocks as of Friday for each GuruFocus region.

Region USA Asia Europe Canada UK / Ireland Oceania Latin America Africa India
Peter Lynch Screener 25 38 32 2 9 0 11 2 5

Table 1

D.R. Horton

Shares of D.R. Horton (

DHI, Financial) traded around $92.32, approximately 10.71 times its earnings per share. The stock’s price-earnings ratio outperforms approximately 62% of global competitors.

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GuruFocus ranks the Arlington, Texas-based homebuilder’s profitability 8 out of 10 on several positive investing signs, which include a 3.5-star business predictability rank, a high Piotroski F-score of 7 and an operating margin that has increased approximately 5.7% per year on average over the past five years and is outperforming more than 80% of global competitors.

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Gurus with large positions in D.R. Horton include

George Soros (Trades, Portfolio)’ Soros Fund Management and David Tepper (Trades, Portfolio)’s Appaloosa Management.

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Lennar

Shares of Lennar (

LEN, Financial) traded around $101.24, approximately 9.37 times its earnings per share. The stock’s price-earnings ratio outperforms approximately 71% of global competitors.

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GuruFocus ranks the Miami-based homebuilder’s profitability 8 out of 10 on several positive investing signs, which include a three-star business predictability rank, a high Piotroski F-score of 9 and an operating margin that has increased approximately 2.1% per year over the past five years and is outperforming over 80% of global competitors.

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Gurus with holdings in Lennar include

Ken Fisher (Trades, Portfolio) and Smead Value Fund (Trades, Portfolio).

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Progressive

Shares of Progressive (

PGR, Financial) traded around $99.04, approximately 9.01 times its earnings per share. The stock’s price-earnings ratio is near a 10-year low and outperforms approximately 64% of global competitors.

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GuruFocus ranks the Mayfield Village, Ohio-based insurance company’s profitability 7 out of 10 on several positive investing signs, which include a three-star business predictability rank, a high Piotroski F-score of 8 and a net profit margin that outperforms more than 70% of global competitors.

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Gurus with holdings in Progressive include Pioneer Investments (Trades, Portfolio) and

Glenn Greenberg (Trades, Portfolio)’s Brave Warrior Investors.

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First American Financial

Shares of First American Financial (

FAF, Financial) traded around $62.23, approximately 8.06 times its earnings per share. The stock’s price-earnings ratio outperforms approximately 68% of global competitors.

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GuruFocus ranks the Santa Ana, California-based insurance company’s profitability 7 out of 10 on several positive investing signs, which include a five-star business predictability rank, a high Piotroski F-score of 7 and a net margin that outperforms more than 66% of global competitors.

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Educational Development

Shares of Educational Development (

EDUC, Financial) traded around $12.65, approximately 8.42 times its earnings per share. The stock’s price-earnings ratio outperforms approximately 85% of global competitors.

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GuruFocus ranks the Tulsa, Oklahoma-based media company’s profitability 8 out of 10 on several positive investing signs, which include a three-star business predictability rank and an operating margin that has increased approximately 8.8% per year on average over the past five years and is outperforming more than 66% of global competitors.

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See also

Table 2 lists the number of stocks meeting GuruFocus’ other key value screens, including the Ben Graham Net-Net Screen, the Undervalued-Predictable Screen, the Buffett-Munger Screen and the Historical Low Price-Sales and Price-Book Screens.

Region USA Asia Europe Canada UK / Ireland Oceania Latin America Africa India
Ben Graham Net-Net Screen 118 409 175 39 22 12 4 7 183
Undervalued-Predictable Screen 159 247 270 20 86 6 139 18 98
Buffett-Munger Screen 22 91 76 5 26 3 33 2 36
Historical Low Price-Sales 81 197 79 0 24 0 38 13 15
Historical Low Price-Book 98 236 101 2 38 0 65 15 24

Table 2

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Disclosures

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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