The 10 Most Undervalued S&P 500 Stocks

Earlier in the week we highlighted the most attractive style and sector universes from our Monthly Market Review. As a follow up to that article we are providing a list of the 10 most undervalued stocks in the S&P 500. All companies listed (click on chart to enlarge) met The Applied Finance Group's (AFG's) Buy screen (criteria explained below) and are in the bottom half of their sector in Market Value/Invested Capital (MV/IC) which by definition qualifies the companies as part of the AFG Value Universe.

10 Most Undervalued Stocks In The S&P 500

When identifying buy ideas, AFG looks for companies with the most valuation upside compared to their sector peers, above sector median expected Economic Margin change, and a management quality score that reflects a management team following a wealth creating strategy.

A brief description of AFG's buy criteria variables is below:

Economic Margin - A corporate performance measurement that addresses the gaps in GAAP, eliminating distortions caused by accounting policies to measure what a company is truly earning above or below their cost of capital.

Valuation Model – Using AFG’s modified discounted cash flow model to measure the intrinsic value of a firm compared to its peers.

Management Quality – Assess management’s ability to make wealth creating decisions.

Value Universe: Companies in the AFG universe, which have MVIC at the bottom 50% of the universe and have EPS estimates.

Market Value/Invested Capital - The firm's average total equity, debt and other obligations divided by net invested capital.

*AFG’s Value Expectation allows us to understand the imbedded Sales Growth, EBITDA Margins, and Asset Turnovers a company has to deliver in the future to justify its current trading price. In theory and in normal circumstances, if the imbedded future performance is very conservative relative to the company’s historical performance, the stock is regarded as undervalued. The table displays the implied future sales growth of companies assuming their EBITDA margins and Asset turnovers stay at the 5 year median levels.

Comments

[ArtfulDodger:]

PFE might look undervalued on the face of it, but with the current Administration ready to socialize medicine and make cuts all over the place, who wants to step into that fiery pit?

Mar 17 12:38 AM

[PeteK:]

That's true, agree.
Also, with all kinds of law-suits nowadays,
plus those "Jury Gone Wild" that makes it
even harder to predict. Not good !!

Mar 17 06:15 AM

[E.D. Hart:]

Id buy more XES if I had the cash now...its the ETF for oil services, and is extremely cheap right now, but avoids specific stock risks.
Long: XES

Mar 17 07:14 PM

[izzylisted:]

And did anyone look at Varian, which just rose 10 bucks, starting at $24.

May 02 07:19 PM