When screening for value investment ideas, the spot rate on 20-year high-quality market corporate bonds can be used as a benchmark. The preference should be for stocks that are doubling the bonds in terms of a higher yield.
The bonds are securities representing the corporate loan issued by companies that are triple-A, double-A and single-A rated. The monthly observation on the spot rate on the 20-year bonds is indicating a yield of 4.53% as of September.
Therefore, the following stocks have earnings yields of 9.06% or higher based on the market value at close on Nov. 23. Such earnings yields, or a price-earnings ratio of less than 11.04, reduces the danger of investing in an underperforming security.
The first stock is Anglo American PLC (NGLOY, Financial) with a price-earnings ratio of 8.86. The London-based multinational mining company was at $10.03 per share on Nov. 23 for a market capitalization of about $28.18 billion. The stock has declined 8% so far this year, but has outperformed the VanEck Vectors Gold Miners Exchange-Traded Fund (GDX) by 11%. The stock price at close on Friday was below the 50-, 100- and 200-day simple moving average lines. The stock has a price-book ratio of 1.31 versus an industry median of 1.74, an EV-to-EBITDA ratio of 4.41 versus an industry median of 9.3 and a forward dividend yield of 4.89%.
Metals and minerals that Anglo American is exploring, mining and processing for are diamonds, platinum group metals, copper, iron, manganese and coal.
The stock appears to trade cheaply, according to the Peter Lynch chart.
The second stock is Norsk Hydro ASA (NHYDY, Financial). The stock closed at $4.85 on Friday with a market capitalization of about $9.85 billion. The stock has a price-earnings ratio of 9.94. The Norwegian multinational integrated aluminium company is down 37% year to date, underperforming the S&P 500 index by nearly 35%. The price-book ratio is 1.01 versus an industry median of 1.74, the EV-to-EBITDA ratio is 4.84 versus an industry median of 9.3 and the forward dividend yield is 4.44%. The share price at close on Friday was below the 50-, 100- and 200-day simple moving average lines.
The chart below shows the stock was trading between the upper Peter Lynch earnings line and the lower Price at Med P/E without NRI on Friday.
The third stock is Alumina Ltd. (AWCMY, Financial), which has a price-earnings ratio of 10.27. The stock closed at $6.49 per share on Friday following a 15% fall since the beginning of 2018. Alumina is an Australian international bauxite miner, alumina refinery and aluminium smelter. The stock has underperformed the S&P 500 index by 13.6% so far this year. The stock has a market capitalization of $4.72 billion, a price-book ratio of 2.31 versus an industry median of 1.74 and an EV-to-EBITDA ratio of 10.04 versus an industry median of 9.3. The forward dividend yield is 11.03%. The share price at close on Friday was below the 50-, 100- and 200-day simple moving average lines.
The Peter Lynch chart suggests the stock is cheap.
Disclosure: I have no positions in any securities mentioned in this article.
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