3 Stocks Trading Below Their Earnings Power Values

Bank of America tops the list

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When looking for stocks that are trading at fair prices, one tool investors can use is the earnings power value metric.

The EPV was designed by Bruce Greenwald, a former professor at Columbia University and a famous value investor who was in search of ways to avoid the series of guesswork choices that must be made 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 following stocks appear fairly priced, as their share prices are standing lower than their respective EPVs.

Bank of America

The first stock that qualifies is Bank of America Corp. (BAC, Financial), the American bank major.

Bank of America's EPV is $40.26 per share (as of Dec. 30, 2020), which is higher than the share price of $37.64 at close on Tuesday for a margin of safety of about 6.5%.

As a result of the 81% share price increase, which happened over the past year, the market capitalization is $323.19 billion. The 52-week range is $17.95 to $38.36.

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GuruFocus has assigned a score of 3 out of 10 to the company's financial strength and of 5 out of 10 to its profitability.

Wall Street sell-side analysts issued an overweight recommendation rating with an average target price of $37.17 per share for the stock.

China Construction Bank

The second stock that makes the cut is China Construction Bank Corp. (CICHY, Financial), a Chinese bank providing various financial services to individuals and businesses.

China Construction Bank's EPV is $24.07 per share (as of Sept. 30), which is higher than Tuesday's closing share price of $17, yielding a margin of safety of 29.4%.

Due to a nearly 9% rise in the share price over the past year, the market capitalization now stands at $210.46 billion. The 52-week range is $12.65 to $17.08.

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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 an overweight recommendation rating for this stock and have established an average target price of $18.66 per share.

Citigroup

The third stock that meets the criteria is U.S. bank major Citigroup Inc. (C, Financial).

Citigroup's EPV is $145.88 per share (as of Dec. 30, 2020), which is much higher than the share price of $73.33 at close on Tuesday, granting a margin of safety of 49.73%.

Following a 101.6% increase in the share price over the past year, the market capitalization now stands at around $152.84 billion. The 52-week range is $32 to $75.59.

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GuruFocus has assigned a score of 3 out of 10 to the company's financial strength and a score of 4 out of 10 to its profitability.

Wall Street sell-side analysts issued a recommendation rating of overweight with an average target price of $79.56 per share for this stock.

Disclosure: I have no positions in any securities mentioned.

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