Investors should search for large-cap stocks with earnings yields that are thrashing the returns of 20-year high-quality market corporate bonds if they want to discover value.
These bonds represent corporate loans issued by triple-A, double-A and single-A-rated companies. The high rate implies a very low investment risk for their holders, as the issuers of the corporate loans are unlikely to have financial problems.
According to the Federal Reserve Bank of St. Louis, these bonds are granting their holders a 3.49% monthly spot rate.
As a result, value investors may want to consider the following stocks since they have a price-earnings ratio of less than 14.33 and an earnings yield of more than 2 times the return on the 20-year bonds. The price-earnings ratio is the inverse of the earnings yield.
Alaska Air Group
Shares of Alaska Air Group Inc (ALK, Financial) closed at $70.07 on Tuesday for a market capitalization of $8.63 billion. The Seattle-based provider of passenger and cargo air transportation services has an earnings yield of 7.03% versus the industry median of 6.73% and a price-earnings ratio of 14.23 versus the industry median of 14.85.
The stock has climbed 29.2% over the past five years through Nov. 19. However, the share price still seems affordable based on the Peter Lynch chart.
GuruFocus assigned a 5 out of 10 rating for the company's financial strength and an 8 out of 10 rating for its profitability.
The stock offers a forward dividend yield of 2% as of Tuesday.
Wall Street issued an overweight recommendation rating for shares of Alaska Air with an average target price of $78.92.
Kubota
Shares of Kubota Corp. (KUBTY, Financial) closed at $77.33 on Tuesday for a market capitalization of $18.87 billion. The Japanese manufacturer and global seller of various types of machinery has an earnings yield of 7.5% versus the industry median of 7.61% and a price-earnings ratio of 13.33 versus the industry median of 13.14.
The stock has rised 1.42% over the past five years. According to the Peter Lynch chart, shares appear to be cheap.
Kubota has received a financial strength rating of 6 out of 10 and a profitability rating of 7 out of 10 from GuruFocus.
The stock grants a forward dividend yield of 2.08% as of Tuesday.
Shares of Kubota have an overweight recommendation rating and an average target price of $85.63 per share.
Timken
Shares of The Timken Co. (TKR, Financial) closed at $52.78 on Tuesday with a market capitalization of $3.98 billion. The North Canton, Ohio-based designer, manufacturer and marketer of bearings and power transmission products has an earnings yield of 7.58% versus the industry median of 5.67% and a price-earnings ratio of 13.2 versus the industry median of 17.65.
Despite the stock increasing 23.64% over the past five years, shares are still affordable according to the Peter Lynch chart.
GuruFocus assigned the company a financial strength rating of 5 out of 10 and a profitability rating of 7 out of 10.
As of Nov. 19, the stock grants a 2.13% forward dividend yield.
Shares of Timken have an overweight recommendation rating and an average target price of $57.89.
Disclosure: I have no positions in any securities mentioned.
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