These Large-Cap Stocks Offer High Earnings Yields
In order to find value opportunities, investors should search for large-cap stocks with earnings yields that are outclassing the returns of 20-year high-quality market corporate bonds.
The bonds represent corporate loans issued by triple-A, double-A and single-A-rated companies, which are unlikely to have financial problems, implying a very low investment risk for their holders.
According to the Federal Reserve Bank of St. Louis, these bonds are rewarding their holders with a 3.48% monthly spot rate.
As a result, value investors may be interested in the following companies as they have a price-earnings ratio of less than 19.2 and an earnings yield of more than 1.5 times the return on the 20-year bonds. The price-earnings ratio is the inverse of the earnings yield.
Shares of The Travelers Companies Inc. (NYSE:TRV) closed at $141.36 on Friday for a market capitalization of $36.81 billion. The New York-based insurance company has an earnings yield of nearly 7% compared to the industry median of 6.5% and a price-earnings ratio of 14.37 versus the industry median of 15.5.
The stock has gained 18% year to date. The closing price on Friday was 27.3% above the 52-week low of $111.08 and 9.7% below the 52-week high of $155.09.
According to the Peter Lynch chart, the stock does not appear to be expensive.
GuruFocus assigned a rating of 3 out of 10 for the company's financial strength and a 6 out of 10 rating for its profitability.
Shares of Travelers have a hold recommendation rating with an average target price of $148.47 per unit.
Shares of Humana Inc. (NYSE:HUM) closed at $289.26 on Friday for a market capitalization of $39.08 billion. The Louisville, Kentucky-based health care plans company has an earnings yield of 6.34% versus the industry median of 5.8% and a price-earnings ratio of 15.78 versus the industry median of 17.19.
The stock has been fairly flat so far this year. The closing price on Friday was 28.2% above the 52-week low of $225.65 and 23% below the 52-week high of $355.88.
According to the Peter Lynch chart, the stock does not appear to be expensive.
Humana has a rating of 5 out of 10 for its financial strength and an 8 out of 10 rating for its profitability.
Wall Street issued an overweight recommendation rating for shares of Humana with an average target price of $326.91.
Shares of Canadian Natural Resources Ltd. (NYSE:CNQ) closed at $25.3 on Friday with a market capitalization of $29.96 billion.
The Canadian oil and gas explorer and producer has an earnings yield of 12.02% and a price-earnings ratio of 8.32.
The stock has increased nearly 5% so far this year. The closing price on Friday was 15.8% above the 52-week low of $21.85 and 25.6% below the 52-week high of $31.77.
The stock appears to be cheap based on the Peter Lynch chart.
GuruFocus assigned a financial strength rating of 4 out of 10 and a profitability rating of 7 out of 10.
Wall Street issued a buy recommendation rating for shares of Canadian Natural Resources with an average target price of $33.47.
Disclosure: I have no positions in any securities mentioned.
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This article first appeared on GuruFocus.
