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3 Stocks With Superior Earnings Yields

- By Alberto Abaterusso

To increase the chances of discovering a good value stock, investors need to look for companies that are beating 20-year high-quality market corporate bonds' yields by 100% or more.

The bonds are securities representing corporate loans issued by triple-A, double-A and single-A rated companies. The chance these companies will not be able to honor their financial obligations is extremely low.


The most recent monthly observation on the spot rate of the 20-year bond indicates a 4.57% yield.

Thus, these stocks have a price-earnings ratio of less than 10.94 as of Feb. 22. The inverse of the ratio is the earnings yield.

Screening for stocks with a price-book ratio of less than 1, a low debt-to-equity ratio and a high five-year earnings per share without non-recurring items growth rate increases the odds of finding a bargain.

SK Telecom Co. Ltd. (SKM) has an earnings yield of 17.73% versus an industry median of 5.17%. Shares of the South Korean telecommunications company were trading around $25.55 on Friday for a market capitalization of $16.66 billion. The stock has fallen 4.7% so far this year and underperformed the S&P 500 index by 16.1%. The closing price on Friday was 13.1% above the 52-week low of $22.6 and 11.8% below the 52-week high of $28.56.

The stock has a price-book ratio of 0.83 versus an industry median of 2.07, a total debt-equity ratio of 37% compared to an industry median of 74% and a five-year earnings per share without non-recurring items growth rate of 11.7%. The S&P 500 index's five-year earnings growth rate is about 6.3%.

The stock has a forward dividend yield of 4.06% as of Feb. 22, which is higher than the industry average of 3.54%.

Wall Street has issued a buy rating with a price target of $32.45 per share, reflecting nearly 27% upside.

The Peter Lynch chart suggests the stock is undervalued.

Janus Henderson Group PLC (JHG) has an earnings ratio of 10.76% versus an industry median of 7.72%. Shares of the London-based asset management firm were trading around $24.28 on Feb. 22 for a market capitalization of about $4.71 billion.

The stock has climbed 17.2% so far this year and has outperformed the S&P 500 index by 5.8%. The closing price on Friday was 27.8% above the 52-week low of $19 and 50.4% below the 52-week high of $36.51.

The stock has a price-book ratio of 0.98 versus an industry median of 0.99, a total debt-to-equity ratio of 7% compared to an industry median of 33% and a five-year earnings per share without non-recurring items growth rate of 13.8%.

The stock is beating the industry's forward dividend yield by 19.3% as Janus Henderson Group grants 5.93%.

Wall Street set a hold rating with a price target of $23.15 per share.

According to the Peter Lynch chart, the stock is cheap.

Assured Guaranty Ltd. (AGO) has an earnings return of 10.34% versus an industry median of 7.4% as of Feb. 22. The Bermuda-based insurance company's stock closed at $41.55 per share on Friday following an 8.5% gain year to date. The stock has underperformed the S&P 500 index by nearly 3 percentage points over the same period. Friday's closing price was 21.9% above the 52-week low of $34.08 and 4.5% below the 52-week high of $43.40.

The stock has a market capitalization of $4.39 billion, a price-book ratio of 0.67 versus an industry median of 1.15, a total debt-to-equity ratio of 19% compared to an industry median of 21% and a five-year earnings per share without non-recurring items growth rate of 45.5%.

The company has a forward dividend yield of 1.54%, but the industry median is much higher at 4.14%.

Wall Street has a buy rating on the stock and set a price target of $51 per share, representing a 22.7% increase from the closing price on Friday.

The Peter Lynch chart suggests the stock is not overvalued.

Disclosure: I have no positions in any securities mentioned.

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This article first appeared on GuruFocus.