When screening the market for stocks that are trading at or below their fair prices, one tool investors can use is the earnings power value.
The earnings power value was popularized by Bruce Greenwald, a former professor at Columbia University and a well-known value investor. He was looking for ways to bypass the series of guesswork choices that must be made when trying to appraise the intrinsic value of a stock through the discounted cash flow valuation model. The metric is calculated as adjusted earnings divided by the weighted average cost of capital.
The following stocks seem reasonably priced, as their share prices are trading lower than their respective earnings power values.
Vale SA
The first stock that meets the criteria is Vale SA (VALE, Financial), a Brazilian global producer and seller of various mining products such as iron, nickel and coal.
Vale SA’s earnings power value is $15.77 per share (as of the March 2022 quarter), which is above the share price of $14.49 as of the end of trading on Thursday, for a margin safety of about 8.14%.
After a 35.37% drop in the share price over the past year, the market capitalization is $67.37 billion. The 52-week range is $11.16 to $23.14.
GuruFocus has assigned a score of 6 out of 10 to the company's financial strength and 8 out of 10 to its profitability.
Capital Research Global Investors, Capital International Investors and Capital World Investors are among the largest institutional shareholders of the company with 3.72%, 3.31% and 3.06% of total shares outstanding, respectively.
Gerdau SA
The second stock that makes the cut is Gerdau SA (GGB, Financial), a Brazilian steel company with activities in Brazil, North America and other countries in South America.
Gerdau SA’s earnings power value is $5.11 per share (as of the March 2022 quarter), which is above the share price of $4.39 as of the end of regular trading hours on Thursday, for a margin of safety of 14.02%.
Following a 23.12% decline in the share price over the past year, the market capitalization is now $7.50 billion. The 52-week range is $3.94 to $6.62.
GuruFocus has assigned a score of 7 out of 10 to both the company's financial strength and its profitability.
Capital International Investors, New World Fund Inc. and Contrarian Capital Management, L.L.C. are among the largest institutional shareholders of the company with 5.70%, 1.72% and 1.32% of total shares outstanding, respectively.
Energy Company of Minas Gerais
The third stock that qualifies is Energy Company of Minas Gerais (CIG, Financial), a generator and distributor of electricity in Brazil.
Energy Company of Minas Gerais’ earnings power value is $2.27 per share (as of the December 2021 quarter), which is above the share price of $1.96 as of the end of regular hours on Thursday, determining a margin of safety of about 13.65%.
After shares rose 15.29% over the past year, the market capitalization is approximately $4.31 billion. The 52-week range is $1.61 to $2.61.
GuruFocus has assigned a score of 5 out of 10 to the company's financial strength and 8 out of 10 to its profitability.
BlackRock Inc., Goldman Sachs Group Inc. and the iShares Global Clean Energy ETF are among the largest fund holders of the company with 2.56%, 1.54% and 0.95% of shares outstanding, respectively.
ArcelorMittal SA
The fourth stock that qualifies is ArcelorMittal SA (MT, Financial), a Luxembourg-based global steel producer with operating activities in the Americas, Europe, Africa and Asia.
ArcelorMittal SA’s earnings power value is $34.67 per share (as of the March 2022 quarter), which is above the share price of $22.19 as of the end of regular hours on Thursday, determining a margin of safety of about 36%.
After shares dropped 28.83% over the past year, the market capitalization is approximately $19.47 billion. The 52-week range is $20.86 to $37.87.
GuruFocus has assigned a score of 7 out of 10 to the company's financial strength and 5 out of 10 to its profitability.
GQG Partners LLC, Arrowstreet Capital, Limited Partnership and Goldman Sachs GQG Partners International Opportunities Fund are among the largest institutional shareholders of the company with 0.98%, 0.61% and 0.59% of total shares outstanding, respectively.
