Introduction
Mid cap stocks offer a happy medium between large caps, that are at significantly elevated valuations today, and small caps, that have lagged the overall market by a large measure. With this screen, we aim to uncover potentially undervalued stocks that may be primed for appreciation. Dividends are of secondary concern, but well appreciated.
Screen Details
This screen is very simple. As far as the first pass goes, we have only considered the two key stock financial ratios used to check for undervaluation. Further research is needed to qualify these stocks as truly undervalued for purchase.
- Market capitalization between $3.5 B and $18.20 B
- P/E ratio < 9 and positive
- P/B ratio < 1
The screen was run using the Fidelity screener. A total of 15 matches were found. Here we look at 3 stocks in Communication Services and Consumer Discretionary sectors.
The Screen Results
Stock | Company Name | P/E (TTM) | Price/Book | dividend yield |
|---|---|---|---|---|
SKM | SK Telecom Co Ltd | 6.4 | 0.82 | 3.93% |
GT | Goodyear Tire & Rubber Co | 6.4 | 0.74 | 4.19% |
TTM | Tata Motors Ltd | 7.8 | 0.59 | - |
Notes and Observations
- SKM: SK Telecom is a wireless telecommunication service provider in South Korea with about 31 million wireless subscribers. The stock trades at a discount to what it should due to perhaps a small subscriber base with limited growth potential. There is also political/war risk. Financially the company is on a sound footing and pays a good dividend to compensate a patient investor.
- GT: Auto industry woes and the tariff threat has worked to suppress the stock heavily this year. The company has been growing its book value and has solid P&L, so if you believe that the tariffs will be short lived and the worst is over, this may be a great stock to acquire. Great dividend as well. I want to take a much deeper look in the stock and I am adding this to the VSG watchlist.
- TTM: Tata Motors is an auto manufacturer that also owns Jaguar and Land Rover. The company seems to be well priced by the information available. The Jaguar/Land Rover division is struggling, and the company and its Jaguar/Land Rover division have recently seen credit downgrades after a $4 Billion in impairment at JLR due to slumping sales in China and effects of BREXIT. The Indian market is also seeing weak demand. This is a turnaround story and there can be significant value in here but much deeper analysis is required.
Ending Note
Of these 3 stocks, I want to review the GT stock further and I am adding this to the VSG watchlist. If other stocks show promise at some later point, I will come back and take another look. Trade wars and other geo-political issues are hurting business at global companies and the investors have sold off these stocks, perhaps more than warranted. If this is temporary stress, it could be a great opportunity to buy up some of these names for eventual turnaround.
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