I sometimes screen for stocks that are outperforming 20-year high-quality market corporate bonds in terms of a higher earnings yield. Such research increases the chances of uncovering a value stock. The 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 indicates a 4.57% yield. The earnings yield is the inverse of the price-earnings ratio. My screening generated three steel stocks.
POSCO (PKX, Financial) has an earnings yield of 7.87%. The stock was trading around $59.3 per share on Wednesday for a market capitalization of roughly $19.09 billion. The stock has gained 8% so far this year. The closing share price on Wednesday was 13.7% above the 52-week low of $52.17 and 47.3% below the 52-week high of $87.35.
The stock has a price-book ratio of 0.49 versus an industry median of 0.99 and an enterprise value-to-earnings before interest, taxes, depreciation and amortization ratio of 4.54 compared to an industry median of 8.71.
The chart below compares the share price of the stock with the Peter Lynch earnings line. It appears the stock is trading cheaply.
POSCO ADR has an overweight recommendation rating and an average target price of $77.37 per share. The overweight rating means analysts expect the stock to outperform either the overall market or the industry within the next 12 months.
Based in South Korea, POSCO is an international producer of steel rolled products and plates.
GuruFocus gave the company's financial strength and profitability and growth both a rating of 6 out of 10.
Steel Dynamics Inc. (STLD, Financial) has an earnings yield of 14.08%. The stock was trading around $37.95 per share on Wednesday for a market capitalization of roughly $8.71 billion. The stock has climbed 26% so far this year. The closing price on Wednesday was 31.3% above the 52-week low of $28.91 and 37.3% below the 52-week high of $52.10.
The stock has a price-book ratio of 2.23 versus an industry median of 0.99 and an EV-to-EBITDA ratio of 4.77 compared to an industry median of 8.71.
The Peter Lynch chart suggests the stock is trading cheaply.
Wall Street has released an overweight recommendation rating with an average target price of $43.25 per share for Steel Dynamics.
Based in Fort Wayne, Indiana, Steel Dynamics is a producer of steel goods and a recycler of metals. The company sells its products in the U.S. and internationally.
GuruFocus assigned a financial strength rating of 7 out of 10 and a profitability and growth rating of 8 out of 10.
Ternium S.A. (TX, Financial) closed at $29.7 on Wednesday for a market capitalization of $5.83 billion. It has an earnings yield of 26.7%. The stock is up 10% so far this year. The price-book ratio is 0.92 versus an industry median of 0.99 and the EV-to-EBITDA ratio is 3.16 compared to an industry median of 8.71. The closing price on Wednesday was 16.4% above the 52-week low of $25.52 and 42.9% below the 52-week high of $42.43.
The Peter Lynch chart suggests the stock is cheap.
Ternium has an overweight recommendation rating.Ă‚ The average target price is $38.71 per share.
Based in Luxembourg, Ternium produces and processes various steel products in the U.S., Mexico and several other countries in Latin America.
GuruFocus assigned a financial strength rating of 6 out of 10 and a profitability and growth rating of 8 out of 10.
Disclosure: I have no positions in any securities mentioned in this article.
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