Picking stocks that more than double the earnings yield of 20-year high-quality corporate bonds increases the likelihood of finding value opportunities.
The Federal Reserve Bank of St. Louis indicates that these bonds, which represent corporate loans issued by triple-A, double-A and single-A-rated companies, reward their holders with an average monthly spot rate of 3.42% as of Oct. 7.
As a result, the following companies have a price-earnings ratio of less than 14.62. The ratio is the inverse of the earnings yield.
Shares of The Charles Schwab Corp. (SCHW, Financial) closed at $35.45 on Monday for a market capitalization of $46.34 billion. The San Francisco-based bank and stock brokerage company has an earnings yield of 7.5% versus the industry median of 6% and a price-earnings ratio of 13.37 versus the industry median of 16.65.
The price-book ratio is 2.55 versus the industry median of 1.06 and the price-sales ratio is 4.56 compared to the industry median of 2.76.
The stock has fallen 14.6% year to date. The closing price on Monday was 2.3% above the 52-week low of $34.92 and 47% below the 52-week high of $52.47.
According to the Peter Lynch chart, the stock is not expensive.
GuruFocus assigned a 4 out of 10 rating for the company's financial strength and a 5 out of 10 rating for its profitability.
Wall Street issued an overweight recommendation rating for shares of Charles Schwab with an average target price of $41.91.
Shares of The Progressive Corp. (PGR, Financial) closed at $75.76 on Monday for a market capitalization of $44.3 billion. The Mayfield, Ohio-based insurance company has an earnings yield of 7.3% versus the industry median of 6.4% and a price-earnings ratio of 13.77 versus the industry median of 15.55.
The stock has a price-book ratio of 3.46 versus the industry median of 1.21 and a price-sales ratio of 1.27 versus the industry median of 1.08.
The stock is up 25.6% so far this year. The closing price on Monday was 33.6% above the 52-week low of $56.71 and 12.1% below the 52-week high of $84.96.
According to the Peter Lynch chart, the stock does not appear to be expensive.
Progressive has a 3 out of 10 rating for its financial strength and a rating of 7 out of 10 for its profitability.
The stock has an overweight recommendation rating and an average target price of $88.81 per share.
Shares of The Allstate Corp. (ALL, Financial) closed at $107.46 on Monday with a market capitalization of $35.37 billion. The Northbrook, Illinois-based provider of insurance products has an earnings yield of 7.1% versus the industry median of 6.4% and a price-earnings ratio of 14.09 versus the industry median of 15.55.
The company has a price-book ratio of 1.58 compared to the industry median of 1.21 and a price-sales ratio of 0.88 versus the industry median of 1.08.
The stock has risen 30% so far this year. The closing price on Monday was 39.6% above the 52-week low of $77 and 1.94% below the 52-week high of $109.55.
The stock does not appear to be expensive based on the Peter Lynch chart.Â
GuruFocus assigned a financial strength rating of 3 out of 10 and a profitability rating of 6 out of 10.
The stock has an overweight recommendation rating and an average target price of $113.50 per share.
Disclosure: I have no positions in any securities mentioned.
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