Looking for U.S.-listed equities that have the characteristics listed below represents a solid starting point when screening the market for potential value opportunities, in my opinion:
- The shares are trading near or below their intrinsic value estimates, as indicated by the Peter Lynch earnings line.
- The return on invested capital exceeds the weighted average cost of capital, suggesting the company is creating value.
- The stock has optimistic recommendation ratings on Wall Street.
Thus, investors could be interested in the following stocks, as they meet the above criteria.
Magnolia Oil & Gas Corporation
The first stock that meets the criteria is Magnolia Oil & Gas Corporation (MGY, Financial), a Houston, Texas-based acquirer of hydrocarbon reserves in the U.S. for exploration or advancement to produce oil, natural gas and liquefied natural gas. Its current tenements are in South Texas and consist primarily of the Eagle Ford Shale and the Austin Chalk mineral formation. At the end of 2021, the company's assets covered nearly 20,000 square meters and owned 1,292 net wells with a total production capacity of approximately 66,000 barrels of oil equivalent per day.
The company aims to create value in the equity market through consistent organic production growth, high operating margins throughout the entire cycle and efficient resource allocation to mineral projects with short payback periods.
The stock price ($23.59 per share on Oct. 6) is trading well below the Peter Lynch earnings line of $55.65 and below the median historical valuation line of $33.61.
The stock has a market capitalization of $5.13 billion and a 52-week range of $17.23 to $30.31.
The most recent full-year ROIC of 68.04% compares favorably to WACC of 17.51%.
On Wall Street, the stock has a median recommendation rating of overweight and an average target price of $29.83 per share.
Tempur Sealy International Inc.
The second stock that qualifies is Tempur Sealy International Inc. (TPX, Financial), a Lexington, Kentucky-based manufacturer and distributor of bedding products in North America and internationally. The bulk of net sales comes from retail, including furniture and bedding retailers, department stores and warehouse clubs and the online sales channel. The company's major brands include Tempur, Tempur-Pedic, Sealy and Stearns and Foster.
The stock price ($27.55 per share on Oct. 6) is trading well below the Peter Lynch earnings line of $44.21 and the median historic valuation line of $60.67.
The stock has a market capitalization of $4.74 billion and a 52-week range of $20.03 to $48.97.
The most recent year's ROIC of 19.71% compares favorably to WACC of 10.49%.
On Wall Street, the stock has a median recommendation rating of overweight and an average target price of $30.60 per share.
Masco Corporation
The third stock that makes the cut is Masco Corporation (MAS, Financial), a Livonia, Michigan-based manufacturer and distributor of home improvement and construction products in North America and internationally. The company operates two divisions. The first, the plumbing segment, led by the Delta and Hansgrohe brands, sells faucets, showerheads and other related plumbing fixtures and components. The second, the decorative architectural segment, primarily sells paint and other coatings under the Behr and Kilz brands but also sells architectural hardware and lighting products.
The stock price ($50.58 per share on Oct. 6) is trading below the Peter Lynch earnings line of $53.81 and is trading well below the median historic valuation line of $78.24.
The stock has a market capitalization of $11.41 billion and a 52-week range of $45.27 to $71.06.
The most recent year's ROIC of 34.71% compares favorably to WACC of 9.86%.
On Wall Street, the stock has a median recommendation rating of overweight with an average target price of $62.65 per share.
