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.
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
EPS 5 yr growth
Sales 5 yr growth
Capital One Financial
Fiat Chrysler Automobiles
KB Financial Group
Santander Consumer USA
Shinhan Financial Group
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.
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.