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3 Stock Picks for the Value Investor

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·3 min read
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- By Alberto Abaterusso

Investing in U.S.-listed equities that have the following characteristics arguably represent a solid starting point when in search of potential value opportunities:

  • The shares are trading near or below their historical median valuations.

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

  • The stock holds optimistic recommendation ratings on Wall Street.




Thus, investors may want to consider the following stocks as they meet the above criteria.

Philip Morris International

The first company that qualifies is Philip Morris International Inc. (NYSE:PM), a New York-based tobacco giant.

The share price ($80.94 as of Jan. 15) is above the Peter Lynch earnings line but still below 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 $126.05 billion and a 52-week price range of $56.01 to $90.17.

Philip Morris International has a ROIC of 33.19%, which is more than six times higher than the WACC of 5.22%.

Wall Street sell-side analysts forecast that after a 1.2% decrease (to $5.13) in 2020, Philip Morris International's earnings per share will increase by 12.7% (to $5.78) in 2021 and by 6.5% per annum over the next five years.

As of January, the stock has two strong buy recommendation ratings, seven buy recommendation ratings and nine hold recommendation ratings on Wall Street. The average target price is $92.13 per share.

AutoZone

The second stock that makes the cut is AutoZone Inc. (NYSE:AZO), a Memphis, Tennessee-based retailer and distributor of automotive replacement parts and accessories.

The share price ($1,248.33 as of Jan. 15) is above the Peter Lynch earnings line but still in line with 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 $28.41 billion and a 52-week range of $684.91 to $1,297.82.

AutoZone has a ROIC of 25.11%, which is four and a half times the WACC of 5.52%.

Wall Street sell-side analysts predict AutoZone's earnings per share will increase by 4.9% (up to $75.49) this year, by 11.9% (up to $84.48) in 2022 and by 5.6% on average every year over the next five years.

As of January, the stock has six strong buy recommendation ratings, six buy recommendation ratings, 14 hold recommendation ratings and only one sell recommendation rating on Wall Street. The average target price is $1,396.29 per share.

Usana Health Sciences

The third stock that meets the criteria is Usana Health Sciences Inc. (NYSE:USNA), a Salt Lake City-based manufacturer and seller of nutritional and personal care products.

The share price of $79.33 (as of Jan. 15) is trading below the Peter Lynch earnings line and the median historical valuation line, as the chart below shows.

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

The stock has a market capitalization of $1.67 billion and a 52-week price range of $43.01 to $92.26.

Usana Health Sciences has a ROIC of 37.21%, which is more than five and a half times the WACC of 6.86%.

Wall Street sell-side analysts forecast earnings of $5.39 per share for 2020 (up 22.2% year over year) and of $5.7 for 2021 (up 5.8% year over year). They also expect earnings per share will increase by 10% on average per annum over the next five years.

As of January, the stock has two strong buy recommendation ratings on Wall Street for an average target price of $102.33 per share.

Disclosure: I have no positions in any securities mentioned.

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This article first appeared on GuruFocus.