Interested in stocks that may be trading below their fair values? For ideas on how to find those undervalued names, we ran a screen you might find interesting.
We ran a screen 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 the S&P 500 for stocks paying dividend yields above 1% and sustainable payout ratios below 50%, as well as those with low debt (debt to equity ratios below 0.3). We then screened for those exhibiting this mismatch between changes in EPS estimate and price.
Of course, there's no reason to believe that P/E should stay constant - it's just an assumption for the sake of the screen.
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.
Do you think these stocks are attractively priced? Use this list as a starting point for your own analysis.
List sorted by dividend yield.
1. KLA-Tencor Corporation (KLAC): Engages in the design, manufacture, and marketing of process control and yield management solutions for the semiconductor and related nanoelectronics industries. Dividend yield at 2.71%, payout ratio at 26.45%. Total debt/equity at 0.25. The EPS estimate for the company's current year increased from 3.53 to 4.17 over the last 30 days, an increase of 18.13%. This increase came during a time when the stock price changed by 9.38% (from 47.46 to 51.91 over the last 30 days).
2. T. Rowe Price Group, Inc. (TROW): A publicly owned asset management holding company. Dividend yield at 2.12%, payout ratio at 41.17%. Total debt/equity at 0. The EPS estimate for the company's current year increased from 3.08 to 3.14 over the last 30 days, an increase of 1.95%. This increase came during a time when the stock price changed by 0.79% (from 57.585 to 58.04 over the last 30 days).
3. Assurant Inc. (AIZ): Provides specialized insurance products and related services in North America and internationally. Dividend yield at 1.78%, payout ratio at 34.02%. Total debt/equity at 0.19. The EPS estimate for the company's current year increased from 4.26 to 4.28 over the last 30 days, an increase of 0.47%. This increase came during a time when the stock price changed by -1.74% (from 41.47 to 40.75 over the last 30 days).
*EPS data sourced from Yahoo! Finance, all other data sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
