With U.S. stock markets within 2 percent of their all-time highs, are there still bargains to be found for long-term investors? We looked for large-cap stocks at a good price using the principles of value investing.
The screen. We used Recognia Strategy Builder to create a strategy to identify the best matching companies in the U.S. market using value investing criteria. We set a minimum market capitalization threshold of $5 billion. We focused on large-cap names in the market due to the greater stability and safety they offer. Second, we employed three value investing criteria to identify stocks that would be of interest to bargain-hunting investors. Specifically, we looked for companies with earnings yield (earnings per share divided by share price) of 8 percent or more, debt to equity of 1.0 or less and a dividend yield of more than 2 percent. Finally, to find stocks with growing investor interest, we employed a trading criterion: Ten-day versus 90-day average volume. We looked for companies whose 10-day average volume was 110 percent or more of the average volume over the past 90 days. Here are the results.
McCormick and Company, based in Sparks, Maryland, ranks No. 1 on our list. McCormick produces spices and herbs for retail and commercial markets. The company has a very high earnings yield of 48 percent, a modest debt-to-equity ratio of 0.56 and a dividend yield of 2.1 percent. The company has also seen above-average trading in its shares in the last 10 days, with a 10-day versus 90-day average volume ratio of 2.0.
Eaton Corporation is a power management company providing electrical and mechanical power equipment. The stock has a strong earnings yield at 15.1 percent and pays a 3.1 percent dividend. On April 29, the company reported first-quarter results, which beat analyst expectations on earnings but missed on revenue. The company also issued downward guidance for the remainder of the year due to currency headwinds. The stock moved slightly lower on this news, but it has since made up all of this lost ground.
Corning is an American manufacturer of glass and ceramics that are mainly used in industrial and scientific applications. In addition to fiber optic communications products, the company is well known as a maker of glass display technology for TVs and handheld devices. Corning makes our list as a good value stock candidate with a low debt-to-equity ratio of 0.15 and a 2.2 percent dividend yield. On April 29, the company reported mixed first-quarter results in which it beat analyst expectations slightly on earnings but missed by a fairly wide margin on revenue. The stock dropped almost 5 percent on this news. The solid earnings yield of 9 percent reflects this recent drop in stock price.
Tyco International is a Swiss security company with U.S. operations based in Princeton, New Jersey. The company appears to be a good value investing candidate with strong earnings yield of 9.5 percent, manageable debt-to-equity ratio of 0.35 and a dividend yield of 2.1 percent. The company reported second-quarter results on April 24, which beat analyst expectations for earnings and were more or less in line for revenue. The market did not like the results and sold off almost 6 percent the next day. The stock is now trading near its 52-week low.
Illinois Tool Works, based in Glenview, Illinois, also makes our list. The company produces engineered components, equipment and specialty products for a range of industries. The company’s debt-to-equity ratio is toward the higher end of our screen at 0.88. However, the company has an attractive 8.2 percent earnings yield and a 2 percent dividend yield. The company issued first-quarter results on April 24, which were somewhat disappointing, and it also provided lowered forward guidance based on expected currency headwinds. The stock has dropped almost 5 percent in the past two weeks, which may provide a reasonable entry point for a long-term value investor.
Historical performance. Recognia Strategy Builder provides a backtesting capability to evaluate how well an investing strategy would have worked over a five-year historical period. Using a three-month buy-and-hold strategy, the screen described had a 15.3 percent annualized return compared with 11.7 percent for the Dow Jones industrial average and 13.7 percent for the Standard & Poor’s 500 index.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Recognia Inc. in respect of the investment in financial instruments. Investors should conduct further research before investing.
More from U.S. News
12 Tech Stocks Investors Should Watch
The Good, Bad and Ugly of Real Estate Investments
4 U.S. Dividend All-Star Stocks
Found: 5 Value Stocks in a Hot Market originally appeared on usnews.com
