When in search of stocks that could be priced fairly, one tool that investors can use is the Earnings Power Value (EPV) metric.
The creation of the EPV metric has been attributed to Bruce Greenwald. It was designed as a way to bypass the series of guesswork choices that are essential when applying the discounted cash flow valuation model. The EPV is calculated as the adjusted earnings divided by the weighted average cost of capital.
The three stocks listed below appear fairly priced, as their share prices are trading lower than their respective EPVs.
Agricultural Bank of China Ltd
The first stock that makes the cut is Agricultural Bank of China Ltd (ACGBY, Financial), a Chinese provider of various banking products and services to corporate and retail clients in Mainland China.
Agricultural Bank of China's EPV is $16.74 per share (as of the September 2020 quarter), which is much higher than the share price of $9.14 at close on Tuesday, Feb. 16, for a margin of safety of 45.38%.
As a result of a 9.53% share price decrease that happened over the past year, the market capitalization is $127.95 billion and the 52-week range is $7.57 to $10.61.
GuruFocus has assigned a score of 3 out of 10 to the company's financial strength and of 4 out of 10 to its profitability.
Wall Street sell-side analysts issued 17 recommendations with a median rating of overweight for the stock.
Bank Of China Ltd
The second stock that qualifies is Bank Of China Ltd (BACHY, Financial), a Beijing, China-based provider of banking and related financial services to consumers and businesses.
Bank Of China's EPV is $25.24 per share (as of the September 2020 quarter), which is higher than Tuesday's closing share price of $8.74, yielding a margin of safety of 65.37%.
Due to a 14.21% decline in the share price which occurred over the past year, the market capitalization now stands at $102.92 billion and the 52-week range is $7.61 to $10.33.
GuruFocus has assigned a score of 3 out of 10 to the company's financial strength rating and of 5 out of 10 to its profitability rating.
Wall Street sell-side analysts issued 24 recommendations with a median rating of overweight for the stock.
Bayerische Motoren Werke AG
The third stock that meets the criteria is Bayerische Motoren Werke AG (BAMXF, Financial), a Munich, Germany-based manufacturer of automobiles, parts and accessories.
Bayerische Motoren's EPV is $84.43 per share (as of the September 2020 quarter), which is slightly above the share price of $84.23 at close on Tuesday, Feb. 16, offering a margin of safety of 0.24%.
Following a 16.26% rise that occurred in the share price over the past year, the market capitalization now trades at $55.70 billion and the 52-week range is $39.90 to $92.45.
GuruFocus has assigned a score of 7 out of 10 to both the company's financial strength rating and its profitability rating.
Wall Street sell-side analysts issued 25 recommendations with a median rating of overweight for this stock.
Disclosure: I have no position in any security mentioned.
Read more here:
- A Trio of High Return on Equity Stock Picks to Consider
- 3 Net-Net Working Capital Stocks
- 3 Large-Cap Stocks Trading Below the Graham Number
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