Introduction
Low multiples such as earnings multiples or book multiples generally represent good values. While this may not be always true, it is true enough that they make for a great screen to shortlist stocks for further review. In this screen we go after the traditional trifecta of low price/book, low price/earnings and low price/sales. At the same time, we are look for some history of sales and earnings growth.
This gives us a good shortlist of stocks from which we can further narrow down our focus by quick review of other fundamental data.
Screen Details
This screen looks for large cap stocks over $5 Billion in market capitalization with low multiples:
- P/E ratio between 2 and 10
- P/B ratio < 1.5
- P/S ratio < 2
- 5 year EPS growth rate > 2%
- 5 year Sales growth rate > 2%
The stocks are limited to those listed on US exchanges.
The Screen Results
Stock | Company | P/E Ratio | P/B Ratio | P/S ratio | EPS 5 yr growth | Sales 5 yr growth |
|---|---|---|---|---|---|---|
AER | AerCap Holdings | 7.9 | 0.9 | 1.8 | 18.3% | 13.2% |
COF | Capital One Financial | 8.9 | 0.8 | 1.7 | 8.8% | 5.3% |
CUK | Carnival | 9.5 | 1.2 | 1.4 | 19.9% | 5.3% |
FCAU | Fiat Chrysler Automobiles | 9.3 | 1.0 | 0.2 | 23.6% | 3.6% |
KB | KB Financial Group | 6.1 | 0.5 | 0.7 | 14.7% | 26.9% |
LEN | Lennar | 9.7 | 1.2 | 0.9 | 20.0% | 25.0% |
OMF | OneMain Holdings | 7.8 | 1.5 | 1.6 | 2.7% | 10.1% |
SC | Santander Consumer USA | 8.6 | 1.1 | 1.3 | 11.0% | 5.9% |
SHG | Shinhan Financial Group | 6.4 | 0.5 | 1.1 | 10.5% | 9.3% |
TOL | Toll Brothers | 8.6 | 1.1 | 0.8 | 20.7% | 13.3% |
UNM | Unum | 6.1 | 0.7 | 0.5 | 7.2% | 2.5% |
VEDL | Vendanta | 9.7 | 0.8 | 0.6 | 59.0% | 2.9% |
YY | YY | 8.8 | 1.1 | 1.5 | 30.8% | 48.5% |
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Notes and Observations
I am not favoring the financial and energy sectors yet. FCAU is under M&A transition. I will hold off on TOL and LEN as I expect the real estate market to soften. Of the remaining, I find the following stocks interesting:
- AER: Altman Z-Score of 0.8 indicates a company that is flirting with bankruptcy. Avoid.
- CUK: Carnival is already in our further review list.
- VEDL: Shaky financials with Altman Z-Score at 1.1. Avoid
- YY: Located in China. Cannot interpret, so will avoid.
Ending Note
The ugly truth about cheap stocks is that they may be on a shaky ground financially. This is apparent from this screen. Carnival still merits further review and we have this stock already in the watchlist from one of the dividend screens earlier.
