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Large-Cap Stocks With Superior Earnings Yields

- By Alberto Abaterusso

If investors want to find more value opportunities, they should look for stocks that double the return of the 20-year, high-quality market corporate bond. These bonds represent corporate loans issued by triple-A, double-A and single-A rated companies.

The most recent observation of the Federal Reserve Bank of St. Louis indicates the monthly average spot rate of the 20-year bond is 4.43%.


The following stocks have a price-earnings ratio, which is the inverse of the earnings yield, of less than 11.3 as of April 12.

Further, the selected stocks have a good financial situation mainly resulting from the return-on-invested-capital ratio topping the weighted-average-cost-of-capital ratio by more than 500 basis points, a total debt-equity ratio of less than 1 and a high interest coverage ratio. (The interest coverage ratio measures the company's ability to pay interest expenses on outstanding debt.)

Equinor ASA ADR (EQNR) has an earnings yield of 9.6% versus the industry median of 8.1% and a price-earnings ratio of 10.44 compared to the industry median of 12.38.

Shares of the Norwegian producer of oil and gas were trading around $23.05 on Friday. The market capitalization is roughly $77 billion. The stock has declined 10% for the 52 weeks through April 12. The share price at close Friday was 15.54% above the 52-week low of $19.95 and 23.6% from the 52-week high of $28.93.

The stock also has a price-book ratio of 1.79 versus the industry median of 1.18, a price-sales ratio of 1.02 compared to the industry median of 0.84 and an enterprise value-Ebitda ratio of 3.28 versus the industry median of 6.79.

In addition, the debt-equity ratio of 60% is higher than the industry median of 48%, but the interest coverage ratio of 51.84 tops the industry median of 11.5. Equinor's return on invested capital is 13.62% and weighted average cost of capital is 6.79%.

Peter Lynch chart suggests the stock is cheap.

Equinor ASA has a rating of 6 out of 10 for financial strength and for profitability and growth.

The stock has an overweight recommendation rating and an average target price of $25.67 per share.

Vale SA (VALE) traded around $13.24 per share on Friday for a market capitalization of $67.9 billion. The Rio de Janeiro-based producer of iron ore and iron pellets has an earnings yield of 9.7% versus the industry median of 7.1% and a price-earnings ratio of 10.29 versus the industry median of 14.16.

The price-book ratio is 1.51 compared to the industry median of 1.62, the price-sales ratio is 1.93 versus the industry median of 1.41 and the enterprise value-Ebitda ratio is 6.71 versus the industry median of 8.71.

In addition, the debt-equity ratio of 35% is slightly higher than the industry median of 34%, but the interest coverage ratio of 7.3 is above the threshold of 1.5. Vale SA's return on invested capital is 23.74% and weighted average cost of capital is 8.2%.

The share price climbed 2% over the past year. The share price at close Friday fell into the 52-week range of $10.89 to $16.13.

The stock seems to be priced fairly, according to below Peter Lynch chart.

GuruFocus assigned a financial strength rating of 5 out of 10 and a profitability and growth rating of 9 out of 10.

The stock has a hold recommendation rating and an average target price of $14.30 per share.

Sony Corp. ADR (SNE) traded around $46.99 on Friday with a market capitalization of approximately $58.3 billion. The Japanese multinational consumer electronics company has an earnings yield of 12.7% versus the industry median of 6% and a price-earnings ratio of 7.88 compared to the industry median of 16.75.

The stock has a price-book ratio of 1.75 versus the industry median of 1.47, a price-sales ratio of 0.79 versus the industry median of 0.98 and an enterprise value-Ebitda ratio of 4.52 versus the industry median of 10.14.

Further, the debt-equity ratio of 37% is marginally higher than the industry median of 36%, but the interest coverage ratio of 57.95 is more than triple the industry median of 18.76. Sony's return on invested capital is 28.94% and weighted average cost of capital is 4.47%.

For the past year through April 12, the share price declined 5%. The share price at close Friday was 12.1% above the 52-week low of $41.91 and 29.9% from the 52-week high of $61.02.

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

GuruFocus has assigned a financial strength rating of 6 out of 10 and a profitability and growth rating of 5 out of 10.

Sony Corp. has an overweight recommendation rating and an average target price of $64.95 per share.

Disclosure: I have no positions in any securities mentioned.

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This article first appeared on GuruFocus.