What we’re looking for
Value stocks, American style.
Last week we scoured the Canadian market for undervalued stocks. Today, we turn to the United States, again using S&P Capital IQ’s Valuation strategy.
How it works
Jamie Hynes, sales director with S&P Capital IQ, screened the Capital IQ global database for stocks in the S&P 500 that ranked highest on six factors (three of which are shown in the table below) that make up the Valuations Style Indicator:
-low share price to book value per share;
-low share price to free cash flow per share;
-low share price to forward earnings per share;
-low share price to earnings adjusted for estimated long-term earnings growth and dividend yield;
-high EBITDA (earnings before interest, taxes, depreciation and amortization) to enterprise value (a company’s market capitalization plus net debt);
-low share price to operating cash flow (relative to companies in same industry).
In the accompanying chart, a stock’s ranking on these factors is given in terms of percentiles of the S&P 500. A stock with a percentile ranking of 1 is in the top 1 per cent of the market for that criterion; one with a percentile ranking of 100 is in the bottom 1 per cent.
More about S&P Capital IQ
S&P Capital IQ offers a comprehensive set of tools for fundamental analysis of global securities, idea generation and workflow management. Its Web- and Excel-based platform provides access to both real-time and historical information on companies, markets, transactions and people around the world.
What we found
S&P tracks eight investing styles. The Valuations style is the second-best performing this year in the U.S. market (just behind the Analyst Expectations model). It has consistently been a high ranking style across different markets and sectors.
As is typical with value strategies, it focuses on stocks trading at bargain prices. Many of the stocks on today’s list are cheap precisely because they’ve tumbled in recent months. Investors should be patient in waiting for a rebound – value stocks can take years to pay off.
And not all value stocks shine, even in the long term. Some are “value traps” that are cheap for good reasons.
To avoid this risk, do your own research before buying any of the names listed here. While a value-based investing strategy has produced good results over time, no style is always in fashion.
S&P Capital IQ's Valuations Style Indicator
|Company||Ticker||$ Price (Nov. 13)||Market Cap ($-mil.)|
|Seagate Technology Public Ltd.||STX-Q||27.93||10,544|
|SunTrust Banks Inc.||STI-N||26.17||13,932|
|Western Digital Corp.||WDC-Q||34.68||8,448|
|JPMorgan Chase & Co.||JPM-N||40.04||152,102|
|CF Industries Holdings, Inc.||CF-N||197.27||12,403|
|Principal Financial Group Inc.||PFG-N||26.50||7,780|
|Southwest Airlines Co.||LUV-N||9.03||6,664|
All dollar figures U.S. Source: S&P Capital IQ. Unless otherwise indicated, all values are percentile rankings relative to the S&P 500 (1 is best; 100 is worst)
|Company||Ticker||$ Price (Nov. 13)||Market Cap ($-mil.)||P/B||Price to CF||Forward P/E||Div. Yield %||% Total Rtn (1-yr)|
|Seagate Technology Public Ltd.||STX-Q||27.93||10,544||65||4||1||4.6||61.8|
|SunTrust Banks Inc.||STI-N||26.17||13,932||5||-||5||0.8||37.0|
|Western Digital Corp.||WDC-Q||34.68||8,448||15||4||1||2.9||31.1|
|JPMorgan Chase & Co.||JPM-N||40.04||152,102||7||2||8||3.0||23.9|
|CF Industries Holdings, Inc.||CF-N||197.27||12,403||49||9||7||0.8||15.0|
|Principal Financial Group Inc.||PFG-N||26.50||7,780||7||3||13||3.2||12.8|
|Southwest Airlines Co.||LUV-N||9.03||6,664||12||10||26||0.4||10.3|
|Genworth Financial Inc.||GNW-N||5.40||2,656||1||1||3||0.0||(22.3)|
|Apollo Group Inc.||APOL-Q||19.01||2,137||50||6||5||0.0||(59.8)|