In order to uncover potential value opportunities in the U.S. stock market, I have screened for companies that meet the following criteria:
1) Their share prices are trading below or near the Peter Lynch earnings line.
2) Their return on invested capital (ROIC) exceeds the weighted average cost of capital (WACC), indicating that the company is allocating financial resources in an efficient and profitable manner.
3) Wall Street analysts predict that their annual earnings per share will grow faster than the S&P 500 index over the next five years. The S&P 500 is expected to grow its EPS 4% per year over the next five years.
Lincoln Electric Holdings Inc
The first company that meets the above-listed criteria is Lincoln Electric Holdings Inc (NASDAQ:LECO), a Cleveland, Ohio-based global manufacturer and seller of brazing, cutting and welding tools and accessories.
The share price ($83.45 as of June 2) trades slightly above the Peter Lynch earnings line but below the median historical valuation line.
The stock has a market capitalization of $4.96 billion and a 52-week price range of $59.30 to $98.32.
Lincoln Electric Holdings has a ROIC of 15.58%, which is more than double the WACC of 7.39%.
Wall Street sell-side analysts predict Lincoln Electric Holdings' annual EPS will grow by nearly 8% every year over the next five years. Analysts recommend a hold rating for the stock and have established an average target price of $80.50 per share.
Mueller Industries Inc
The second company that meets the above listed criteria Mueller Industries Inc (NYSE:MLI), a Collierville, Tennessee-based manufacturer and seller of metal and plastic products.
The share price ($26.72 as of June 2) trades slightly below the Peter Lynch earnings line.
The stock has a market capitalization of $1.52 billion and a 52-week price range of $16.78 to $34.11.
Mueller Industries has a ROIC of 11.84%, which is almost double the WACC of 6.4%.
Wall Street sell-side analysts predict Mueller Industries' annual EPS to increase by a yearly growth rate of 12% over the next five years versus. Analysts recommend a hold rating for the stock and have established an average price target of $40 per share.
Best Buy Co Inc
The third company that meets the above listed criteria is Best Buy Co Inc (NYSE:BBY), a Richfield, Minnesota-based specialty retailer of various technology products in the U.S. and Mexico.
The share price ($80.53 as of June 2) currently trades slightly below the Peter Lynch earnings line.
The stock has a market capitalization of $20.80 billion and a 52-week range of $48.11 to $91.99.
Best Buy has a ROIC of nearly 17%, which is higher than the WACC of 11%.
Wall Street sell-side analysts predict Best Buy's annual EPS will increase by nearly 8% every year over the next five years. Analysts recommend an overweight rating for this stock and have produced an average target price of $84.82 per share.
Disclosure: I have no positions in any securities mentioned.
Read more here:
- 2 Long-Term Payers Announce Dividends
- A Trio of Stocks Growing Earnings Fast
- 3 High Quality Stocks for the Value Investor
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
This article first appeared on GuruFocus.