What are looking for?
Finding bargain stocks gets to be more of a challenge in a persistent bull market. More than five years of stock gains have pushed up valuations and increased the level of investor interest in equities.
Furthermore, the lack of an alternative asset class to stocks paying decent returns has driven a greater proportion of investor money into the stock market.
So we went looking for less-scrutinized stocks in the hopes that some buying opportunities lurk out of the spotlight.
How did we do it?
First, we used the level of analyst coverage as a measure of investor attention. Apple Inc., for example, currently has 65 analysts following its stock. We set a maximum of four analyst recommendations.
Within that limited analyst audience, we still wanted stocks that were highly regarded. So eligible stocks had to have a consensus rating of at least three on a scale of five, where a higher score represents a more favourable recommendation.
We also screened U.S. and Canadian-listed companies by market capitalization, setting a $1-billion minimum. That size is disproportionate to the small amount of analyst attention we're seeking.
Next, we set some criteria to find companies with decent records of generating returns. Our minimum five-year average return on equity was set at 8 per cent.
Lastly, we screened for stocks with a dividend yield of at least 2 per cent.
What did we find?
A total of 19 lesser-hyped stocks met all of our conditions. Among Canadian-listed companies, only two made the list – E-L Financial Corp. Ltd. and Winpak Ltd.
In the case of E-L Financial, the investment holding company which controls, among other entities, Empire Life Insurance Co., just one analyst covers the stock, which is priced higher than $700 per share.
This list may be a good starting point to identify bargains among the market's low-key stocks, but investors should conduct their own research before making any investment decisions.
Clarification: This screen for less-scrutinized large cap stocks used the 12-month dividend yield, which in the case of E-L Financial Corp. and Winpak includes large special cash dividends announced recently. For those two companies the indicated yield, which projects the ongoing dividend stream, would be much lower.