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Alberto Abaterusso
Alberto Abaterusso
Articles (1663) 

3 Large-Cap Companies With High Earnings Yields

Stocks are trading below Peter Lynch value

July 15, 2019 | About:

Investors may want to consider securities that, as of Friday, are at least doubling 20-year high-quality market corporate bond yields. This increases the likelihood of finding value stocks.

The bonds represent corporate loans issued by triple-A, double-A and single-A-rated companies, which means they are unlikely to have financial issues. The Federal Reserve Bank of St. Louis indicated the 20-year bond’s monthly average spot rate is 3.97%.

Thus, based on Friday’s closing price, the following securities have price-earnings ratios below 12.59. The ratio is the inverse of the earnings yield.

Wall Street also has an overweight recommendation rating for the following securities, suggesting they are expected to outperform either the industry or the entire market within 12 months.

What’s more, the Peter Lynch line indicates these stocks are not overvalued.

The first company is Capital One Financial Corp. (NYSE:COF), a financial and credit services company headquartered in McLean, Virginia.

Shares closed at $91.07 on Friday for a market capitalization of $42.77 billion. The stock has an earnings yield of 13.23% versus the industry median of 8.91% and a price-earnings ratio of 7.56 versus the industry median of 11.22.

Capital One also has a price-book ratio of 0.80 versus the industry median of 0.97 and a price-sales ratio of 1.59 versus the industry median of 2.37.

GuruFocus assigned a rating of 4.2 out of 10 for the bank's financial strength and 4 out of 10 for its profitability and growth.

Wall Street issued an average target price of $107.16 per share, which represents nearly 18% upside from Friday’s closing price.

In line with the S&P 500 Index, the stock has gained about 20.5% year to date. The 52-week range is $69.90 to $101.26.

According to the Peter Lynch chart, the stock is undervalued.

The second company is United Overseas Bank Ltd. (UOVEY).

Shares of the Singapore-based regional bank closed at $39.09 on Friday for a market capitalization of $32.60 billion. The stock has an earnings yield of 29.50% versus the industry median of 8.45% and a price-earnings ratio of 3.39 versus the industry median of 11.84.

The stock also has a price-book ratio of 1.11 versus the industry median of 1.05 and a price-sales ratio of 4.95 versus the industry median of 2.91.

GuruFocus assigned a rating of 4 out of 10 for both the company's financial strength and  profitability and growth.

Wall Street issued an average price target of $43.34 per share, reflecting nearly 11% upside from Friday’s closing price.

The stock has increased 8.2% so far this year, but underperformed the S&P 500 index by 12%. The 52-week range is $33.79 to $41.85.

The Peter Lynch chart suggests the stock is undervalued.

The third company is Dallas-based Southwest Airlines Co. (NYSE:LUV).

The airline's hares closed at $52.51 on Friday with a market capitalization of $28.52 billion. The stock has an earnings yield of 8% versus the industry median of 7.4% and a price-earnings ratio of 12.44 versus the industry median of 13.56.

The stock has a price-book ratio of 2.96 versus the industry median of 1.5 and a price-sales ratio of 1.34 compared to the industry median of 0.6.

GuruFocus assigned a financial strength rating of 6.6 out of 10 and an 8 out of 10 rating for the company's profitability and growth.

Wall Street issued an average target price of $58.56 per share, reflecting 11.3% upside from the closing price on Friday.

The stock has climbed nearly 13% this year, but underperformed the S&P 500 index by about 7.3%. The 52-week range is $44.28 to $64.02.

The Peter Lynch chart indicates the stock is undervalued. 

Disclosure: I have no positions in any securities mentioned.

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About the author:

Alberto Abaterusso
If somebody asks what being a value investor means, Alberto Abaterusso would answer, “The value investor is not just the possessor of the security that represents the company, but he is the owner of that company. As an owner of the company the value investor is actively involved in the dynamics of that company and his first concern is how to have sales progressively growing. Also, the value investor is probably one of the most demanding persons in the world concerning sales.”

Abaterusso is a freelance writer based in The Netherlands. He primarily writes about gold, silver and precious metals mining stocks. His articles have also been widely linked by popular sites, including MarketWatch, Financial Times, 24hGold, Investopedia, Financial.org, CNBS, MSN Money, Zachs, Reuters and others. Alberto holds an MBA from Università degli Studi di Bari (Italy), Aldo Moro.

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