To find value opportunities, investors should search for stocks that offer earnings yields that more than double the returns of 20-year high-quality market corporate bonds. Holders of these bonds receive a 3.48% monthly spot rate.
The bonds represent corporate loans issued by triple-A, double-A and single-A-rated companies. These issuers will unlikely have financial difficulties, implying for their shareholders a very low investment risk.
Thus, the following stocks have a price-earnings ratio, which is the inverse of the earnings yield, of less than 14.37.
CBSÂ
Shares of CBS Corp. CBS closed at $38.11 on Friday for a market capitalization of $14.37 billion. The New York-based mass media company has an earnings yield of 21.4% versus the industry median of 5.7% and a price-earnings ratio of 4.67 versus the industry median of 17.64.
The stock has fallen 26.5% over the past five years through Nov. 8, sending the share price lower to a cheap valuation based on the Peter Lynch chart.
GuruFocus assigned a low 3 out of 10 rating for the company's financial strength, but a high 8 out of 10 rating for its profitability.
The stock grants a forward dividend yield of 1.89% as of Friday.
Wall Street issued an overweight recommendation rating for shares of CBS with an average target price of $48.41.
BorgWarner
Shares of BorgWarner Inc. BWA closed at $46.31 on Friday for a market capitalization of $9.56 billion. The Auburn Hills, Michigan-based provider of parts for combustion, hybrid and electric vehicles has an earnings yield of 8% versus the industry median of 7.1% and a price-earnings ratio of 12.74 versus the industry median of 14.17.
The stock price is down 16.54% over the past five years and shares seem to be cheap based on the Peter Lynch chart.
BorgWarner has received a financial strength rating of 6 out of 10 and a profitability rating of 8 out of 10 from GuruFocus.
The stock grants a forward dividend yield of 1.47% as of Friday.
The stock has an overweight recommendation rating and an average target price of $47.13 per share.
Oshkosh
Shares of Oshkosh Corp. OSK closed at $90.07 on Friday with a market capitalization of $6.2 billion. The Oshkosh, Wisconsin-based designer, builder and seller of specialty vehicles and vehicle bodies has an earnings yield of 9.1% versus the industry median of 7.5% and a price-earnings ratio of 10.98 versus the industry median of 13.26.
The stock still seems to be cheap according to the following Peter Lynch chart, despite a 97% increase in its share price over the past five years.
GuruFocus assigned the company a very positive financial strength rating of 7 out of 10 and a high profitability rating of 8 out of 10.
The stock offers a forward dividend yield of 1.33% as of Nov. 8.
Analysts issued an overweight recommendation rating for shares of Oshkosh and have set an average target price of $96.20.
Disclosure: I have no positions in any securities mentioned.
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