Picking U.S.-listed equities that have the following characteristics represents a solid starting point when in search of potential value opportunities:
- The shares are trading close to or below their historical median valuations or the Peter Lynch earnings line.
- The return on invested capital exceeds the weighted average cost of capital, which indicates the company is creating value for shareholders.
- The stock has optimistic recommendation ratings on Wall Street.
Thus, investors could be interested in the stocks listed below since they meet the above criteria.
Sealed Air
The first company that makes the cut is Sealed Air Corp. (SEE, Financial), a Charlotte, North Carolina-based provider of packaging solutions and containers.
The share price ($60.42 as of Aug. 13) is above the Peter Lynch earnings line ($46.8), but is still trading very close to the median historical valuation line ($59.21), as the following chart shows.
The stock has a market capitalization of $9.06 billion and a 52-week price range of $36.27 to $60.75.
Sealed Air has a ROIC of 13.12%, which is more than 1.5 times the WACC of 7.57%.
On Wall Street, the stock has a median recommendation rating of overweight with an average target price of $66.09 per share.
Trean Insurance Group
The second stock that meets the criteria is Trean Insurance Group Inc. (TIG, Financial), a Wayzata, Minnesota-based insurance company focusing on workers' compensation, accident and health and medical professional liability products in the United States.
The share price ($9.03 as of Aug. 13) is trading below the median historical valuation line ($15.42), and the Peter Lynch earnings line ($26.6), as the following chart illustrates.
The stock has a market capitalization of $461.87 million and a 52-week range of $8.41 to $19.57.
Trean Insurance Group has a ROIC of 8.82%, which is about 1.3 times the WACC of 7.13%.
On Wall Street, the stock has a median recommendation rating of overweight and an average target price of $17.67 per share.
InfuSystems Holdings
The third stock that qualifies is InfuSystems Holdings Inc. (INFU, Financial), a Rochester Hills, Michigan-based supplier of infusion pumps and related products and services in North America.
The share price ($15.25 as of Aug. 13) trades above the Peter Lynch earnings line ($12.75), but is still significantly below the median historical valuation line ($22.18), as the chart below illustrates.
The stock has a market capitalization of $312.15 million and a 52-week price range of $11.65 to $23.26.
InfuSystems has a ROIC of 27.46%, which is about three and a half times the WACC of 7.61%.
On Wall Street, the stock has a median recommendation rating of buy and an average target price of $28 per share.
