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Don't Miss This Trio of High Earnings Return Stocks

GuruFocus.com

To find value opportunities, investors should select stocks that offer higher earnings yields than 20-year high-quality market corporate bonds. How much higher? At least twice if they want to have a higher chance their investment will produce above-market returns.

Holders of these bonds, which represent corporate loans issued by triple-A, double-A and single-A-rated companies, receive a monthly spot rate of 3.49%, which translates into a price-earnings ratio of 28.65. This means investors looking for value opportunities should pick stocks with a price-earnings ratio of less than 14.33 or an earnings yield of more than 6.98%.


The following are interesting securities with the above-listed characteristics of earnings return.

Sonic Automotive

Shares of Sonic Automotive Inc. (NYSE:SAH) closed at $32.37 on Friday for a market capitalization of $1.4 billion. The Charlotte, North Carolina-based automotive retailer has an earnings yield of 8.52% versus the industry median of 7.1% and a price-earnings ratio of 11.74 versus the industry median of 14.1.

The stock has climbed 20.8% over the past five years through Dec. 6. Regardless of the growth, the share price still seems affordable based on the Peter Lynch chart.

GuruFocus assigned a moderate rating of 4 out of 10 for the company's financial strength and a positive rating of 6 out of 10 for its profitability.

The stock offers a forward dividend yield of 1.24% as of Friday.

Wall Street issued a hold recommendation rating for shares of Sonic Automotive with an average target price of $33.17.

Hilltop Holdings

Shares of Hilltop Holdings Inc. (NYSE:HTH) closed at $24.81 on Friday for a market capitalization of $2.25 billion. The Dallas-based regional bank has an earnings yield of 8.82% versus the industry median of 8.5% and a price-earnings ratio of 11.34 versus the industry median of 11.76.

The stock has climbed 19.5% over the past five years through Dec. 6, but shares appear to still be cheap according to the Peter Lynch chart.

Hilltop Holdings has received a low rating from GuruFocus for both its financial strength and its profitability.

The stock offers a forward dividend yield of 1.29% as of Friday.

Shares of Hilltop Holdings have an overweight recommendation rating and an average target price of $27.58 per share.

Graham Holdings

Shares of Graham Holdings Co. (NYSE:GHC) closed at $629.93 on Friday with a market capitalization of $3.35 billion. The Arlington, Virginia-based provider of education and training services has an earnings yield of 7.1% versus the industry median of 5.1% and a price-earnings ratio of 14.15 versus the industry median of 19.61.

The share price of Graham Holdings has increased 10.3% over the past five years through Dec. 6. Shares are, however, not expensive as they are trading near their fair value according to the Peter Lynch chart.

GuruFocus assigned the company a positive rating of 6 out of 10 for both its financial strength and its profitability.

The stock grants an 0.88% forward dividend yield as of Friday.

Shares of Graham Holdings have a hold recommendation rating and an average target price of $550.

Disclosure: I have no positions in any securities mentioned.



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This article first appeared on GuruFocus.