Investors may want to consider securities that, as of Tuesday, are beating 20-year high-quality market corporate bond yields by at least 100%. This increases the chances of unearthing value.
The bonds represent corporate loans issued by triple-A, double-A and single-A rated companies, which means they are unlikely to have financial problems. The Federal Reserve Bank of St. Louis indicated that the monthly average spot rate of the 20-year bond is 4.38%.
Thus, since the earnings yield is the inverse of the price-earnings ratio, the following stocks are trading for less than 11.42 times earnings as of Tuesday.
What’s more? These companies also benefit from a strong financial situation and have a buy recommendation rating on Wall Street, with a price target that anticipates more than 40% stock appreciation within 52 weeks. By contrast, the S&P 500 index, a benchmark for the U.S. stock market, is expected to decline 3.1% over the same span of time from the closing price on Tuesday.
The first company is Contura Energy Inc. (CTRA, Financial), a Bristol, Tennessee-based metallurgical and thermal coal producer and distributor to the U.S. and international customers.
Shares were trading around $59.24 at close on Tuesday for a market capitalization of $1.13 billion. The stock has an earnings yield of 39.4% versus the industry median of 7.8% and a price-earnings ratio of 2.54 versus the industry median of 12.82.
The stock also has a price-sales ratio of 0.33 compared to the industry median of 1.28 and an EV-Ebitda ratio of 5.90 versus the industry median of 7.79.
GuruFocus assigned a rating of 6 out of 10 for financial strength and of 5 out of 10 for profitability and growth of the company.
Wall Street issued an average price target of $94.33 per share of Contura Energy Inc.
The stock has declined nearly 10% so far this year, underperforming the S&P 500 index by 25%. The closing price on Tuesday fell within a 52-week range of $53.22 to $81.
The Peter Lynch chart suggests that the stock is cheap.
The second company is Enerplus Corp. (ERF, Financial), a Canadian oil and gas production and exploration company.
The share price was $8.3 at close on Tuesday for a market capitalization of $1.98 billion. The stock has an earnings yield of 13.6% versus the industry median of 8.5% and a price-earnings ratio of 7.33 versus the industry median of 11.83.
Further, Enerplus Corp. has a price-sales ratio of 1.80 compared to the industry median of 2.73 and an EV-Ebitda ratio of 3.65 versus the industry median of 7.99.
GuruFocus assigned a rating of 6 out of 10 for both the financial strength and for the profitability and growth of the company.
Wall Street issued an average target price of $17.45 per share of Enerplus Corp.
The stock has gained nearly 7% year to date but is underperforming the S&P 500 index by 8%. The 52-week range is $6.84 to $13.87.
According to the Peter Lynch chart, the stock seems inexpensive.
The third company is Methode Electronics Inc. (MEI, Financial). Based in Chicago, the company produces and markets electronic components worldwide.
Shares closed at $29.07 on Tuesday with a market capitalization of roughly $1.08 billion. The stock has an earnings yield of 9.8% versus the industry median of 6% and a price-earnings ratio of 10.24 versus the industry median of 16.75.
Other ratios indicate that the stock has a price-book ratio of 1.56 versus the industry median of 1.47 and a price-sales ratio of 1.15 compared to the industry median of 0.98.
GuruFocus assigned a rating of 6 out of 10 for both the financial strength rating and for the profitability and growth of the company.
Wall Street issued an average target price of $42 per share of Methode Electronics Inc.
So far this year, the stock has climbed 24.8%, outperforming the S&P 500 index by nearly 10%. The closing price on Tuesday fell within a 52-week range of $20.99 to $45.45.
The Peter Lynch chart indicates that the stock is trading cheaply.
Disclosure: I have no positions in any securities mentioned.
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