Here we offer an interesting way to find potentially undervalued opportunities. Under the theoretical assumption that 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 admit that many stocks have been trading lower lately due to the large breadth of the latest market downturn; however, it is helpful to focus on stocks with increases in projected earnings.
We ran a screen on large-cap dividend champions, companies that have consistently raised their dividend per share over the last 25 years. We screened these companies for those exhibiting the behavior of growth in earnings estimates over the last 30 days coupled with decreases in price.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.
We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.
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Do you think these companies are being undervalued? Use this list as a starting-off point for your own analysis.
List sorted by dividend yield.
1. AFLAC Inc. (AFL): Accident & Health Insurance Industry. Market cap of $17.43 billion. Dividend yield at 3.22%, payout ratio at 30.74%. Over the last 30 days, analyst projected EPS has increased 0.96% (from $6.23 to $6.29), while the price has changed -15.41% (from $44.33 to $37.50). Might be undervalued at current levels, with a PEG ratio at 0.81, and P/FCF ratio at 2.23. It's been a rough couple of days for the stock, losing 5.04% over the last week.
2. PPG Industries Inc. (PPG): Specialty Chemicals Industry. Market cap of $11.85 billion. Dividend yield at 3.03%, payout ratio at 34.59%. Over the last 30 days, analyst projected EPS has increased 3.31% (from $6.64 to $6.86), while the price has changed -14.29% (from $88.71 to $76.03). The stock has performed poorly over the last month, losing 14.6%.
3. The McGraw-Hill Companies, Inc. (MHP): Publishing Industry. Market cap of $11.69 billion. Dividend yield at 2.58%, payout ratio at 34.22%. Over the last 30 days, analyst projected EPS has increased 0.69% (from $2.88 to $2.90), while the price has changed -6.74% (from $42.15 to $39.31). The stock has gained 37.33% over the last year.
4. Dover Corp. (DOV): Diversified Machinery Industry. Market cap of $10.24 billion. Dividend yield at 2.29%, payout ratio at 24.26%. Over the last 30 days, analyst projected EPS has increased 3.86% (from $4.40 to $4.57), while the price has changed -16.45% (from $65.67 to $54.87). The stock has performed poorly over the last month, losing 16.16%.
*EPS and price data sourced from Yahoo Finance, all other data sourced from Finviz.