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I sometimes screen for companies that are thrashing 20-year high-quality market corporate bonds in terms of a higher earnings yield. Such research increases the odds of uncovering a value stock. These bonds are securities representing the corporate loan issued by companies that are triple-A, double-A and single-A rated.
The most recent monthly observation on the spot rate of the 20-year bond is indicating a 4.66% yield. Therefore, my screening produced the following three stocks.
JPMorgan Chase & Co. (JPM, Financial) has an earnings yield of 8.44%. The U.S. bank major was trading around $95.96 on Wednesday for a market capitalization of roughly $319.11 billion. The stock has fallen 10% so far this year. The closing share price on Wednesday was 5.3% above the 52-week low of $91.11 and nearly 24.4% below the 52-week high of $119.33. The stock has a price-book ratio of 1.36 versus an industry median of 1.24 and a price-sales ratio of 3.13 compared to an industry median of 3.41.
The chart below compares the closing price on Wednesday with the Peter Lynch earnings line. It appears the stock is trading cheaply.
JPMorgan has a recommendation rating of 2.2 out of 5 and an average target price of $120.07 per share.
The bank's financial strength rating and profitability and growth rating are both 3 out of 10, according to GuruFocus.
Royal Dutch Shell PLC (RDS.A, Financial) decreased 14% to $57.70 share price and its Class B shares (RDS.B, Financial) declined 13% to $59.12 year to date. The British-Dutch oil and gas supermajor has an earnings yield of 8.4%.
Other indicators on the stock suggest that:
- The market cap is $238.09 billion.
- The price-book ratio is 1.29 versus an industry median of 1.18 for Class A shares.
- The price-book ratio is 1.31 for Class B shares.
- The price-sales ratio is 0.70 versus an industry median of 0.84.
- The 52-week range is $55.04 to $73.86 for Class A stock.
- The 52-week range is $56.26 to $76.99 for Class B stock.
- The recommendation rating is 1.6 out of 5 for Class A shares.
- The average target price is $79.27 per share of Class A stock.
- The recommendation rating is 1.3 out of 5 for Class B shares.
- The average target price is $80 per share of Class B stock.
GuruFocus has assigned a financial strength rating of 6 out of 10 and a profitability and growth rating of 5 out of 10.
The chart below compares the share price at close on Wednesday with the Peter Lynch earnings line for both Class A and Class B shares. The stock appears to be cheap.
Bank of America Corp. (BAC, Financial) closed at $24.11 on Wednesday for a market capitalization of $236.62 billion. The stock has an earnings yield of 8.7%. The share price is down 18% so far this year. The price-book ratio is 0.99 versus an industry median of 1.24 and the price-sales ratio is 2.81 versus an industry median of 3.41. The closing share price on Wednesday was 6.4% above the 52-week low of $22.66 and 37.1% below the 52-week high of $33.05.
The Peter Lynch chart suggests the stock is not expensive.
GuruFocus has assigned a financial strength rating of 4 out of 10 and a profitability and growth rating of 3 out of 10.
The recommendation rating is 2 out of 5 and the average target price is $33.87 per share.
Disclosure: I have no positions in any securities mentioned in this article.
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