Great value stocks are hard to find in the large cap universe, although there are candidates to consider. This segment of the market tends to be highly efficient so we do need to go through a lot of names before we can find some potentially investment worthy values. It is also important to cast a wide net. We have looked both domestic names as well as ADRs in this screen. Here we look at non-financial stocks. In the next installment I will list the financial stocks that met the screen criteria.
For this screen we have considered the basic price to earnings and price to book value filters. We added an additional qualification for the historical EPS growth rate to be in the highest 40% of the market.
- Market capitalization between $18.20 B and $82 B
- Price to Earnings (TTM) < 15
- Price to Book < 1.5
- EPS Growth Rate (5 year historical) in highest 40%
You will note that both P/E ratio and P/B ratio criteria is less stringent than what we normally use for small cap and mid cap screens.
The screen was run using the Fidelity screener.
The Screen Results
p/e (ttm earnings)
EPS growth (5yr)
Marathon Petroleum Corp
Micron Technology Inc.
Notes and Observations
- CCL: Nicely valued, Carnival Cruise Lines also offers a good dividend. A good solid hold for a buy and hold investor that prioritizes income.
- ADM: While the valuation does not appear to be very compelling, the company has a good moat. Agri-business is a loose oligopoly and the barriers to entry today are high. This can be a solid long term hold for an investor looking to diversify and it pays a good dividend.
- EQNR: Equinor is a Norwegian integrated oil producer, refiner and marketer. The company was formerly known as Statoil. As an integrated oil major, the company is more dependent on the oil prices than refiners only. As a result of the weakening oil prices the valuation has suffered. If you expect the oil prices to firm up in the future as OPEC gets more teeth, this may be a great stock to buy. Excellent dividend to compensate you for waiting.
- MPC: Marathon Petroleum is oil and gas refiner and marketer. The company operates Marathon and Speedway retail brands. Oil prices are weaker now than the recent years due to increasing shale output and the industry stocks have declined. At this time the stock is attractively priced and offers a great 3.9% dividend yield.
- MU: Micron makes memory and storage solutions. The company operates at a very high margins and about 30% return on equity. The stock has sold down on the trade war worries (including Huawei ban) as well as the slowdown in China potentially hurting revenues. However the company has a strong balance sheet, ample liquidity and trades at a very reasonable valuation, allowing the company and any investor to ride out any near term volatility.
None of these stocks offer a very compelling valuation. Most large caps typically do not interest value investors unless they are cyclical stocks flirting with a turnaround in business prospects. I suspect EQNR and MPC are such stocks but it is likely that the valuations can get even more attractive before the eventual turnaround occurs. MU carries some political risk but it is discounted in the stock price.
These are all great stocks to buy in a steady buy and hold portfolio. However if you manage a deep value investing portfolio, you may want to keep looking.
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