Value stocks are now getting back in favor. It has been almost 7 years of growth and momentum leading the value in returns. This year we have seen significant capital move out of growth and into value.
If you are an investor seeking great value investments but you are not fully confident of buying small caps, you should consider mid cap stocks. These tend to show up more undervalued opportunities than large caps and the companies are generally better understood and more stable then smaller companies. Mid cap stocks should also be less volatile.
In this screen, I have stayed under a P/E ratio of 9 and a book value greater than the market value.
Interestingly, financials predominate this list, perhaps due to the perceived interest rate risk. Most of these companies also pay great dividends which is always an attractive quality in a value stock. Mid cap stocks with good dividends that you can buy for cheap right now, what is not to like!
1. Aercap Holdings NV (AER)
The stock trades at 6.8 times earnings, with a price to book ratio of 0.93. The stock does not pay a dividend.
AerCap is an independent aircraft leasing company based in Dublin, Ireland. Being a capital intensive industry, debt is on the high side and the short term liquidity can be an issue, which is likely why the stock is cheap. Declining oil prices also allow the airlines to lease less and operate their old fuel inefficient planes. When the oil prices go up again, leasing will become more attractive all over again. This may be another industry where we may be seeing a cyclical low as there is a glut of airplanes in the inventory. Very interesting macro economic set up here that we need to keep an eye on.
2. Lincoln National Corporation (LNC)
The stock trades at 8.83 times earnings, with a price to book ratio of 0.70 and a dividend yield of 2.50%.
Lincoln National is a life insurance company providing a full range of insurance products. The stock values the company at $9.6 B. Overall a solid stock with great value now. The stock is down about 30% in the last 52 weeks as longer dated annuities and other similar products are interest rate sensitive.
3. XL Group plc (XL)
The stock trades at 8.95 times earnings, with a price to book ratio of 0.94 and a dividend yield of 2.17%
Another company based in Ireland. There must be something about the taxes! To be fair, they have proposed moving to Bermuda. If we didn’t have a couple of other insurance stocks in the portfolio, I would look very hard at this. Solid operations (92% combined ratio in 2015), and great balance sheet.
4. Unum Group (UNM)
The stock trades at 8.96 times earnings, with a price to book ratio of 0.86 and a dividend yield of 2.38%
Accident, Health and Life insurer, Unum has a 170 year old pedigree. The stock is cheapish to fairly valued, dividend is consistent and this could be one of the best mid cap stocks to buy for the long term. You know, just buy it and tuck it away in a corner in your portfolio.
5. Fifth Third Bancorp (FITB)
The stock trades at 8.36 times earnings, with a price to book ratio of 0.90 and a dividend yield of 3.11%
Cincinnati, Ohio based bank is fairly diversified with retail and commercial banking, investments and consumer lending. The stock is well priced and can be a great long term hold.
6. CIT Group Inc. (CIT)
The stock trades at 5.51 times earnings, with a price to book ratio of 0.57 and a dividend yield of 1.87%
CIT provides lending, leasing and advisory services (banking) to small and middle market businesses. They also have a well regarded private banking group. The company delayed filing its most recent annual report due to a material weakness it discovered in One West, a recent acquisition. Profits have been below target as well recently. The valuation reflects these issues, so the question is how long it takes the company to move past this and the stock to recover.
7. Woori Bank Co., Ltd. (WF)
The stock trades at 6.2 times earnings, with a price to book ratio of 0.35 and a dividend yield of 5.15%
This is a South Korean bank that I have looked at on and off for the last 10-15 years. The valuation is great, the stock (ADR) has low liquidity and of course there is a nice dividend.
As always, these screens are shortlists that deserve further research. It is not a recommendation to buy or sell any security and we may or may not own these stocks in the Value Stock Guide Premium Portfolio.
Have an opinion or a question on any of the stocks in this list? Let me know in the comments below. If you like the article, please share on you networks.