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3 Stock Picks for the Value Investor

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GuruFocus.com
·3 min read
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- By Alberto Abaterusso

In my opinion, if you are screening the U.S. market in search of potential value opportunities, looking for stocks that meet the following three criteria can provide a solid starting point:

  • The share prices are trading near or below their historical median valuations, which indicates the stock is not too overvalued.

  • The return on invested capital surpasses the weighted average cost of capital, which suggests the company is creating value for shareholders.

  • The stock is predicted to perform very well in the future as it holds positive recommendation ratings on Wall Street.




Thus, investors may be interested in the following three stocks, as they meet the above criteria.

Activision Blizzard Inc

The first stock that qualifies is Activision Blizzard Inc (NASDAQ:ATVI), a Santa Monica, California-based electronic gaming and multimedia company.

The share price of $75.73 (as of Oct. 30) is trading above the Peter Lynch earnings line but still close to the median historical valuation line, as the chart below illustrates.

3 Stock Picks for the Value Investor
3 Stock Picks for the Value Investor

The stock has a market capitalization of $58.45 billion and a 52-week price range of $50.51 to $87.73.

Activision Blizzard has a return on invested capital of 14.5%, which is more than three times the weighted average cost of capital of 4.7%.

Wall Street sell-side analysts predict that Activision Blizzard's EPS will grow by 50.2% this year, 4.4% in 2021 and 24.4% every year over the next five years. As of October, the stock has nine strong buy recommendations, 11 buy recommendations and seven hold recommendation ratings for an average target price of $95.73 per share.

STMicroelectronics NV

The second company that holds the criteria is STMicroelectronics NV (NYSE:STM), a Swiss multinational producer of semiconductors.

The share price ($30.54 as of Oct. 30) is above the Peter Lynch earnings line but still standing near the median historical valuation line.

3 Stock Picks for the Value Investor
3 Stock Picks for the Value Investor

The stock has a market capitalization of $27.58 billion and a 52-week price range of $14.67 to $35.34.

STMicroelectronics NV has a ROIC of 13.4%, which is 620 basis points higher than the WACC of 7.2%.

Wall Street sell-side analysts predict that after an 8.7% decrease (to $1.05) this year, STMicroelectronics NV's EPS will increase by 46.7% (to $1.54) in 2021 and by 49% per annum over the next five years.

As of October, the stock has one strong buy recommendation rating, two buy recommendation ratings, two hold recommendation ratings and only one underperform recommendation rating. The average target price is $38.23 per share.

NetApp Inc

The third stock that makes the cut is NetApp Inc (NASDAQ:NTAP), a Sunnyvale, California-based provider of cloud data services, hybrid cloud solutions, software and hardware maintenance,and other professional services to several industries globally.

The share price ($43.89 as of Oct. 30) trades below the median historical valuation line significantly.

3 Stock Picks for the Value Investor
3 Stock Picks for the Value Investor

The stock has a market capitalization of $9.74 billion and a 52-week range of $34.66 to $65.38.

NetApp Inc has a ROIC of 13.1%, which is almost twice the WACC of 7%.

Wall Street sell-side analysts estimate NetApp Inc's EPS will be $3.42 for the current fiscal year (-15.6% year over year) but higher again in the next fiscal year (+17.8% to $4.03) and in each of the next five years (+3.9% per annum).

As of October, the stock has three strong buy recommendation ratings, 11 buy recommendation ratings, 13 hold recommendation ratings and only one underperform recommendation rating. The average target price is $50.75 per share.

Disclosure: I have no positions in any securities mentioned.

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This article first appeared on GuruFocus.