Buying a stock when others have given up hope can be extremely profitable if sentiment changes. That’s exactly what Citywire Elite Companies is looking for this week among companies with strong backing from some of the world’s best investors.
Lists of 20 large cap stocks and 20 value stocks for smart money picks can be found at the end of this article.
How our data deep dive works
To start the hunt for top-rated, high-yield stocks, we select the top fifth of large- and small-cap stocks (market caps above and below $2.3 billion) along with the elite investors we track. All companies must also have a Citywire Elite Company Rating of AAA or AA.
How Citywire Elite Companies Work.
We then rank these stocks based on eight valuation metrics to highlight the 20 cheapest large- and small-cap stocks. It should be possible to rank each stock based on at least five indicators. The valuation factors we look at are as follows:
- Forecast (+12 months) price-to-earnings (PE) ratio
- Projected (+12 months) dividend yield
- Historical shareholder return is the return based on dividends per share plus net buybacks per share.
- Sales corresponding to projected enterprise value (EV) (+12 months)
- Earnings EV to forecast (+12 months) before interest and taxes
- Projected (+12 months) free cash flow yield
- Projected (+12 months) book value
- Forecast (+12 months) price/earnings growth ratio
Tables of 20 large- and small-cap value stocks can be found at the end of this article, ordered by their cheapness.
This Data Deep Dive is one of five simple but powerful studies we regularly conduct on Citywire Elite’s top-rated stocks to uncover investment ideas. Each week we look at one of five screens. They are:
Seven Samurai
A standout theme on our deep valuation screen is the number of Japanese companies in our list of bargain stocks. There are seven of them in total, and they all look very cheap.
Take Endo Lighting (JP:6932), one of the two highest AAA-rated companies out of seven.
Endo produces LED lighting for both the consumer and commercial markets. It’s not the most exciting line of business and the company’s profits are forecast to fall 6% over the next 24 months after an extremely strong recovery last year.
However, the company does boast decent quality by country standards with a reputation for very low corporate return on equity. The projected return on equity (RoE) over the next 12 months is almost 10%, making Endo one of the highest quality companies of the seven on this metric.
But above all, Endo’s valuable qualities stand out.
The stock is valued at just five times expected earnings, 0.4 times sales and 0.6 times book value. These lowest ratings remain despite total shareholder return (share price and dividends) of 40% over the last 12 months.
The company pays dividends with a projected yield of 2.5%. The company appears to be able to afford to boost its cash earnings on the basis that its net cash is equivalent to 16% of its 24 billion yen market capitalization.
Endo’s money pile is nothing compared to AA rated Endo’s money pile. Hoshiden (JP:6804), which produces electronic components with a focus on the telecommunications and automotive industries. Net cash of 75 billion yen is equivalent to 61% of its market value.
Hosiden’s enterprise value (EV) valuation, which adjusts market value for net cash, means the company is worth less than three times its projected earnings before interest and tax (Ebit) – staggeringly cheap! It also forecasts earnings to grow 10% per year over the next two years.
The largest Japanese company on the list has a AAA rating. Sumitomo Mitsui Trust (JP:8309), or SuMi Trust for short. It is a holding company with 60 subsidiaries, dominated by SuMi Trust Bank.
The company’s financial results last year were marred by mammoth hedging losses of nearly 300 billion yen, causing pre-tax profit to fall by almost two-thirds to 98 billion yen.
However, business fundamentals were encouraging and trading is expected to continue in the same vein this year. This is reflected in strong share price performance, making SuMi Trust the second-best performing of seven high-value companies picked by Japan over the past 12 months, with a total return of 51%.
SuMi Trust also takes shareholder-friendly actions similar to those encouraged by Japanese authorities. This includes the sale of strategic holdings in other listed companies. The company is about halfway through a three-year plan to sell 150 billion yen of shares and expects earnings from the shares to be 50 billion yen in 2024.
Investors are hoping these moves will go some way to improving return on equity, which is forecast to be just over 7% over the next 12 months.
SuMi Trust also has a progressive dividend policy and is committed to paying out 40% or more of available earnings.
Other topics
Traditional automakers, e.g. AAA rated Mercedes (DE:MBG) and Kia (KR: 000270), as well as companies supplying their products, for example, with an AAA rating. Hankook tires and technology (KR:161390) are a notable feature of our deep dive into valuable data this month.
The industry was also a standout feature on screen a month ago when we took a closer look at the investment landscape, with leading investors betting on these low-cost car makers amid a boom in earnings.
A number of insurance companies also appear in the screen results, as is often the case during our in-depth value searches.
Companies related to the oil and gas sector, including those with an AAA rating, are also actively represented. Eni (IT:ENI) and Civitas Resources (USA:CIVI), which forecast record dividend yields of 7% and 11%, respectively. The recent decline in stock prices reflects lower oil prices, as well as low natural gas prices throughout much of this year.
Two Georgian banks, whose shares are listed on the London Stock Exchange, Bank of Georgia (UK: BGEO) and TBC Bank (GB:TBCG), also available. Their share prices have fallen as a result of the country’s introduction of measures that infringe on civil liberties and are perceived as anti-Western.
We’ll be taking a closer look at a couple of the AAA-rated companies highlighted on screen in separate articles over the coming days: Stay tuned for more coverage Jupiter Fund Management (UK:JUP) and Carrefour (France: California).
Deep Smart Money Favorites
The tables below are sorted by cheapest based on our careful selection criteria (see box at the beginning of this article).
Big hats
Source: FactSet, accessed June 4.
Small hats
Source: FactSet, accessed June 4.