Looking for fairly priced stocks enhances chances to discover value.
Benjamin Graham, the pioneer of value investing, co-author with David Dodd of "Security Analysis" in 1934 and author of "The Intelligent Investor" in 1949, suggested multiplying the stock’s price-earnings ratio by its price-book ratio and compare the result with the value of 22.5.
When the stock’s Graham blended multiplier is below 22.5, it is likely worth purchasing as it is considered underestimated by the market.
Here are some results of my search of companies with market capitalizations above $5 billion.
An overweight rating that sell-side analysts recommended for each of the following holdings corroborates expectations of well-performing stocks.
The first company is Synchrony Financial (SYF, Financial). Shares of the Stamford, Connecticut-based provider of financial services to consumers in the U.S. closed at $34.09 on Monday for a market capitalization of $22.62 billion.
The stock has a Graham blended multiplier of 11.73, as the price-earnings ratio is 7.07 and the price-book ratio is 1.66. The credit services industry has a median of 11.26 for the price-earnings ratio and of 0.92 for the price-book ratio.
Synchrony Financial tops 71.43% of competitors operating in the credit services industry in terms of better price-earnings ratio and 27.47% of competitors in terms of better price-book ratio.
Wall Street set an average target price of $40.42 for shares of Synchrony Financial, reflecting 18.6% upside within 52 weeks.
In the past year through Sept. 30, the share price has already risen 9% to above the 200- and 50-day simple moving average lines, but it is still below the 100-day line, though slightly.
The 52-week range is $21.78 to $36.87. The dividend yield is 2.5% versus the industry median of 3.22% as of Sept. 30. The company is currently paying a cash quarterly dividend of 22 cents per common share. Synchrony Financial has paid dividends since Aug. 25, 2016.
The 14-day relative strength index of 55 suggests the stock is neither overbought nor oversold.
The second company is Shinhan Financial Group Co. Ltd. (SHG, Financial). The stock of the South Korean regional bank traded at $34.99 per share at close on Monday for a market capitalization of $16.15 billion.
The stock has a Graham blended multiplier of 3.29, as the price-earnings ratio is 6.21 versus the industry median of 11.63, and the price-book ratio is 0.53 versus the industry median of 1.02.
Shinhan Financial Group Co. beats 86.48% of competitors operating in the bank industry in terms of better price-earnings ratio and 79.62% of competitors in terms of better price-book ratio.
Wall Street set an average target price of $44.94 for shares of Shinhan Financial Group Co. Ltd., reflecting a 28.4% increase from Monday’s closing price.
In the past year through Sept. 30, the share price has decreased 13% to below the 200- and 100-day simple moving average lines, but it is still above the 50-day line, though slightly.
The 52-week range is $32.14 to $41.79.
The 14-day relative strength index of 48 indicates the stock is neither overbought nor oversold.
The third company is Encana Corp. (ECA, Financial). Shares of the Canadian oil and gas explorer and producer closed at $4.6 on Monday for a market capitalization of $6.17 billion.
The stock has a Graham blended multiplier of 2.53, as the price-earnings ratio is 3.95 and the price-book ratio is 0.64. The oil and gas industry has a median of 7.39 for the price-earnings ratio and of 0.91 for the price-book ratio.
Encana Corp.’s price-earnings ratio is ranked higher than 71.95% of peers operating in the oil and gas industry and price-book ratio is ranked 63.98% of peers in the industry.
Wall Street set an average target price of $7.84 for shares of Encana Corp., reflecting 75.8% upside from Monday’s closing price.
In the past year through Sept. 30, the share price has fallen 65% to below the 200- and 100-day simple moving average lines, but it is still a whisper away above the 50-day line.
The 52-week range is $3.92 to $13.61. The dividend yield is 1.57% versus the industry median of 4.53% as of Sept. 30.
The company is currently paying a cash quarterly dividend of 1.9 cents per common share. Encana Corp. has paid dividends since Dec. 31, 2001.
The 14-day relative strength index of 47 suggests the stock is neither overbought nor oversold.
Disclosure: I have no positions in any securities mentioned.
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