To find value opportunities, investors should search for stocks 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, which are unlikely to have financial difficulties. Shareholders of these companies run a very low investment risk.
According to the Federal Reserve Bank of St. Louis, holders of these bonds receive a 3.42% monthly spot rate.
As a result, the following companies have a price-earnings ratio, which is the inverse of the earnings yield, of less than 14.62.
Shares of Lithia Motors Inc. LAD closed at $130.23 on Friday for a market capitalization of $3.02 billion. The Medford, Oregon-based retailer of new and used vehicles in the U.S. has an earnings yield of 8.8% compared to the industry median of 7.4% and a price-earnings ratio of 11.39 versus the industry median of 13.56.
The stock also has a price-book ratio of 2.35 versus the industry median of 1.12 and a price-sales ratio of 0.25 versus the industry median of 0.57.
The stock has gained 70.6% year to date. The closing share price on Friday was 91.8% above the 52-week low of $67.9 and 6.9% below the 52-week high of $139.18.
The Peter Lynch chart indicates the stock is still cheap despite the impressive increase in the share price.
GuruFocus assigned a rating of 4.8 out of 10 for the company's financial strength and a 7 out of 10 rating for its profitability and growth.
Lithia Motors has an overweight recommendation rating with an average target price of $142.18.
Shares of Belden Inc. BDC closed at $52.97 on Friday for a market capitalization of $2.41 billion. The St. Louis-based provider of signal transmission solutions has an earnings yield of 7.4% versus the industry median of 5.8% and a price-earnings ratio of 13.48 versus the industry median of 17.34.
The stock also has a price-book ratio of 1.46 versus the industry median of 1.51 and a price-sales ratio of 0.87 versus the industry median of 1.
The stock has climbed 27% so far this year. The closing price on Friday was 40.2% above the 52-week low of $37.79 and 37.4% below the 52-week high of $72.8.
According to the Peter Lynch chart, the stock is cheap.
Belden has a rating of 4.8 out of 10 for financial strength and a 7 out of 10 rating for its profitability and growth.
Wall Street issued an overweight recommendation rating for shares of Belden with an average target price of $55.50.
Shares of Korn Ferry KFY closed at $37.62 on Friday with a market capitalization of $2.11 billion.
The Los Angeles-based provider of talent management solutions to worldwide companies has an earnings yield of 8.7% versus the industry median of 5.8% and a price-earnings ratio of 11.54 versus the industry median of 17.2.
Korn Ferry also has a price-book ratio of 1.66 versus the industry median of 2.33 and a price-sales ratio of 1.06 compared to the industry median of 0.67.
The stock has declined 4.84% so far this year. The closing price on Friday was 9.5% above the 52-week low of $34.35 and 32.7% below the 52-week high of $49.93.
The stock appears to be cheap based on the Peter Lynch chart.
GuruFocus assigned a financial strength rating of 6.6 out of 10 and a profitability and growth rating of 8 out of 10.
Analysts suggest investors adjust their positions in Korn Ferry based on an overweight rating.The average price target is $49.60.
Disclosure: I have no positions in any securities mentioned.
Read more here:
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- Analysts Expect These 2 Falling Knives to Bounce Back
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