4 Stocks Trading Below Earnings Power Value

These businesses appear to be fairly priced

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Sep 06, 2022
Summary
  • Macy's Inc., HP Inc., Devon Energy Corp and The Western Union Company are trading below their earnings power values.
  • The EPV was popularized by Bruce Greenwald, a former professor at Columbia University and a prominent value investor.
  • It is calculated as the adjusted earnings divided by the weighted average cost of capital.
  • It allows investors to bypass a series of guesswork choices that must be made when evaluating the intrinsic value of a stock through the discounted cash flow model.
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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.

Macy’s Inc.

The first stock that meets the above criteria is Macy's Inc. (

M, Financial), a New York-based department store retailer operating 725 locations in the United States, the District of Columbia, Puerto Rico and Guam. The company’s merchandise is sold also through stores in Dubai, United Arab Emirates and Kuwait under license agreements.

Macy's earnings power value is $37.74 per share (as of the most recent fiscal quarter ended on July 29), which is above the share price of $17.10 as of the end of trading on Friday, for a margin safety of about 54.69%.

After a 22.02% drop in the share price over the past year, the market capitalization is $4.63 billion. The 52-week range is $15.85 to $37.95.

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GuruFocus has assigned a score of 5 out of 10 to the company's financial strength and 7 out of 10 to its profitability.

Vanguard Group Inc., BlackRock Inc. and

Jim Simons (Trades, Portfolio) are among the largest institutional shareholders of the company with 10.87%, 9.5% and 4.57% of total shares outstanding, respectively.

HP Inc.

The second stock that makes the cut is HP Inc. (

HPQ, Financial), a Palo Alto, California-based computer hardware company.

HP Inc.’s earnings power value is $88.28 per share (as of the most recent fiscal quarter that ended on July 30), which is above the share price of $27.64 as of the end of regular trading hours on Friday, for a margin of safety of 68.69%.

Following a 3.53% decline in the share price over the past year, the market capitalization is now $28.58 billion. The 52-week range is $26.11 to $41.47.

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GuruFocus has assigned a score of 6 out of 10 to the company's financial strength and 8 out of 10 to its profitability.

Warren Buffett (Trades, Portfolio), Vanguard Group Inc. and BlackRock Inc. are among the largest institutional shareholders of the company with 10.10%, 9.60% and 9.51% of total shares outstanding, respectively.

Devon Energy Corp

The third stock that qualifies is Devon Energy Corp. (

DVN, Financial), an Oklahoma City, Oklahoma-based oil and gas producer that operates approximately 5,134 gross wells in the United States.

Devon Energy Corp.’s earnings power value is $223.85 per share (as of the June 2022 quarter), which is above the share price of $70.34 as of the end of regular hours on Friday, determining a margin of safety of about 68.58%.

After shares rose 142% over the past year, the market capitalization is approximately $46.06 billion. The 52-week range is $27.40 to $79.40.

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GuruFocus has assigned a score of 7 out of 10 to the company's financial strength and 5 out of 10 to its profitability.

Vanguard Group, BlackRock Inc. and State Street Corp. are among the largest fund holders of the company with 11.54%, 8.31% and 6.10% of shares outstanding, respectively.

The Western Union Co

The fourth stock that qualifies is The Western Union Co (

WU, Financial), a Denver, Colorado-based provider of global money transfer and payment services, making it easier to transfer money between consumers and businesses and conduct consumer-to-business transactions.

The Western Union Co's earnings power value is $28.05 per share (as of the June 2022 quarter), which is above the share price of $14.56 as of the end of regular hours on Friday, determining a margin of safety of about 48.1%.

After shares dropped 32.31% over the past year, the market capitalization is approximately $5.62 billion. The 52-week range is $14.51 to $21.87.

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GuruFocus has assigned a score of 5 out of 10 to the company's financial strength and 9 out of 10 to its profitability.

BlackRock Inc., Vanguard Group Inc. and Capital Research Global Investors are among the largest institutional shareholders of the company with 16.34%, 10.95% and 5.76% of total shares outstanding, respectively.

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Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
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