What are we looking for?
U.S. stocks looking well valued despite the recent stock market run-up.
Since the U.S. election two weeks ago, U.S. stocks have been on a tear with major indexes setting new records this week. For the first time since 1999, the Dow Jones industrial average, Russell 2000, S&P 500 and the Nasdaq composite index all set new all-time highs on the same day this week. With stocks now sitting at record highs, is there still value to be found in the U.S. market?
The screen
We will be using Recognia Strategy Builder to identify promising companies in the U.S. market using traditional value investing criteria.
We begin by setting a minimum market capitalization threshold of $5-billion (U.S.). We wish to focus on large-cap names in the market due to the greater stability and safety that they offer. Approximately 10 per cent of U.S. stocks have a market cap in excess of this threshold.
Second, we will employ four value investing criteria to identify stocks which would be of interest to bargain hunting investors. Specifically, we will look for companies with a forward price-to-earnings ratio (P/E) of less than 15, a five-year historical annualized earnings per share (EPS) growth rate of 5 per cent or more, debt to equity of 1.5 or less and a five-year historical annualized dividend growth of more than 10 per cent.
More about Recognia
Recognia is a global leader in automated quantitative analysis and engagement solutions for retail online brokers and institutions. Recognia's product suite provides actionable trading ideas based on technical and fundamental research covering stocks, ETFs, indexes, forex, options and commodities.
What did we find?
MetLife Inc. tops our list with a market cap of more than $60-billion and an extremely low P/E ratio of 11.8. MetLife is one of the largest global providers of insurance with more than 90 million customers in 60 countries. Since the U.S. election on Nov. 8, MetLife stock has soared more than 14 per cent.
The largest stock on our list is Cisco Systems Inc. with a market cap in excess of $150-billion. Cisco announced first quarter results on Nov. 16 that largely beat analyst expectations. However, the company also offered tepid guidance for the coming quarter, which caused shares to decline abruptly. Despite this decline, the stock is still up 9 per cent year-to-date and offers a strong dividend yield of 3.4 per cent and a reliable five-year dividend growth rate.
The lowest forward P/E on our list belongs to office equipment giant Xerox Corp. With a forward P/E of only 8.2, a 3.3 per cent dividend yield and an 11 per cent five-year dividend growth rate, Xerox is a stock with many appeals to a traditional value investor.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Recognia Inc. in respect of the investment in financial instruments. Investors should conduct further research before investing.
Peter Ashton is vice-president of retail and self-directed investing at Recognia Inc.