Interested in finding undervalued stocks during earnings season? We found 3 stocks that appear undervalued by EPS trends, and pay an attractive dividend.
To create the list below we first screened for dividend stocks that report earnings in February. Our list consists of 276 stocks.
We then looked for those that appear undervalued relative to EPS trends. Based on the theoretical assumption that if P/E is equal to a constant K, growth in EPS estimates should be matched by proportionate growth in price. When they don't match up, a mispricing may have occurred. We screened for those exhibiting this mismatch between changes in EPS estimate and price.
All 3 stocks in our final list pay a dividend above 2%.
A Closer Look
Our final list consists of 3 stocks, but how attractive are the equity valuations? We took a closer look at the valuation of Endurance Specialty Holdings (ENH). The stock is trading around $43.46, close to its 52-week high of $43.73, up 15% in the past 1-year. It trades with a P/E multiple of 67 times, and 1.4 times relative to the S&P 500 (SPX).
The company's competitors consist of ACE Limited (ACE), and American International Group (AIG), both significantly larger by market cap. ACE trades with a P/E multiple of 11 times, while American International Group trades with a multiple of 10 times.
Endurance Specialty pays a dividend yield of 2.85% while ACE Limited stock yields 2.29%.
We would also like to point out that the Endurance Specialty non-cumulative preferred shares series A (ENH.PRA) yields close to 7.5%. One of the risks being that the shares are non-cumulative, meaning that if the company missed a dividend payment the preferred shareholder may not receive the missed payment when the company re-establishes the dividend payment.
Hence there are a few ways to invest in the company story. We still encourage investors to do a more detailed analysis before making an investment decision.
Interactive Chart: Press Play to compare changes in market cap over the last two years for the stocks mentioned below.
Do you think these stocks should be trading higher? Use this list as a starting point for your own analysis.
1. CH Energy Group Inc. (CHG): Engages in the electric utility, natural gas utility, and fuel distribution business.
- Market cap at $971.75M, most recent closing price at $65.02. Dividend yield at 3.4%.
- The EPS estimate for the company's current year increased from 2.85 to 3.03 over the last 30 days, an increase of 6.32%. This increase came during a time when the stock price changed by -0.52% (from 65.19 to 64.85 over the last 30 days).
- The company is expected to report earnings on February 14th, 2013.
2. Endurance Specialty Holdings Ltd. : Engages in underwriting specialty lines of personal and commercial property and casualty insurance and reinsurance worldwide.
- Market cap at $1.86B, most recent closing price at $42.92. Dividend yield at 2.85%.
- The EPS estimate for the company's current year increased from 0.65 to 0.73 over the last 30 days, an increase of 12.31%. This increase came during a time when the stock price changed by 9.56% (from 38.79 to 42.5 over the last 30 days).
- The company is expected to report earnings on February 7th, 2013.
3. Winthrop Realty Trust (FUR): Engages in the ownership and management of real property and real estate-related assets.
- Market cap at $395.43M, most recent closing price at $11.95. Dividend yield at 5.4%.
- The EPS estimate for the company's current year increased from 1.37 to 1.51 over the last 30 days, an increase of 10.22%. This increase came during a time when the stock price changed by 2.61% (from 11.11 to 11.4 over the last 30 days).
- The company is expected to report earnings on February 26th, 2013.
*EPS data sourced from Yahoo! Finance, all other data sourced from Finviz.