To find value opportunities, investors should look for securities with earnings yields that at least double the returns of 20-year high-quality market corporate bonds.
The bonds represent corporate loans issued by triple-A, double-A and single-A-rated companies, implying a very low investment risk for their holders. These companies are unlikely to have financial issues.
The Federal Reserve Bank of St. Louis indicated the 20-year bond’s monthly average spot rate is 4.17%. Thus, the following large-cap stocks have an earnings yield of more than 8.34% or a price-earnings ratio of less than 11.99 as of July 5.
In addition, these stocks are not expensive based on the Peter Lynch value.
Lloyds Banking Group PLC (LYG, Financial) closed at $2.89 on Friday for a market capitalization of $51.44 billion. The London-based bank has an earnings yield of 8.62% versus the industry median of 8.38% and a price-earnings ratio of 11.60 versus the industry median of 11.94.
The price-book ratio is 0.82 versus the industry median of 1.06 and the price-sales ratio is 0.78 compared to the industry median of 2.91.
The stock has gained 13% so far this year. The share price at close on Friday was 18.9% above the 52-week low of $2.43 and 20% below the 52-week high of $3.47.
The stock appears to be priced fairly based on the Peter Lynch chart.
GuruFocus assigned a rating of 3.8 out of 10 for the company's financial strength and 3 out of 10 for its profitability and growth.
The stock has an overweight recommendation rating and an average target price of $3.71 per share, reflecting 29.3% upside from the closing price on Friday.
Bank of New York Mellon Corp. (BK, Financial) traded around $44.53 per share at close on Friday for a market capitalization of $42.64 billion. The New York-based financial services company has an earnings yield of 8.7% versus the industry median of 7.1% and a price-earnings ratio of 11.50 versus the industry median of 14.02.
The stock also has a price-book ratio of 1.14 versus the industry median of 1.06 and a price-sales ratio of 2.82 compared to the industry median of 3.76.
The stock is down 5% year to date. The closing share price on Friday was 5.7% above the 52-week low of $42.13 and 25% below the 52-week high of $55.70.
According to the Peter Lynch chart, the stock appears to be undervalued.
Bank of New York Mellon has a GuruFocus financial strength rating of 3.8 out of 10 and a profitability and growth rating of 3 out of 10.
The stock has a hold recommendation rating and an average target price of $49.08 per share, which represents 10.2% upside from Friday's closing price.
Energy Transfer LP (ET, Financial) closed at $14.6 per share on Friday with a market capitalization of $38.25 billion. The Dallas-based oil and gas midstream operator has an earnings yield of 8.4% versus the industry median of 7.1% and a price-earnings ratio of 11.95 versus the industry median of 14.
The stock also has a price-book ratio of 1.86 versus the industry median of 1.66, a price-sales ratio of 0.41 versus the industry median of 1.77 and an enterprise value-Ebitda ratio of 9.99 compared to the industry median of 11.88.
The stock has climbed 11% so far this year. The closing share price on Friday was 25% above the 52-week low of $11.68 and 31.4% below the 52-week high of $19.19.
The Peter Lynch chart suggests the stock is cheap.
GuruFocus assigned a financial strength rating of 4.2 out of 10 and a profitability and growth rating of 6 out of 10.
The stock has a buy recommendation rating and an average target price of $21.29 per share, reflecting 50% growth from the closing price on Friday.
Disclosure: I have no positions in any securities mentioned.
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