In order to discover potential value opportunities in the U.S. stock market, I have screened for stocks with the following characteristics:
- Their share prices are trading below or near the Peter Lynch earnings line.
- Their return on invested capital surpasses the weighted average cost of capital significantly, indicating that the company is making efficient and profitable use of its financial resources.
- Their stock prices are expected to perform well over the next 52 weeks of trading as sell-side analysts on Wall Street have recommended positive ratings.
Hamilton Lane
The first stock that meets these criteria is Hamilton Lane Inc. (HLNE, Financial), a Bala Cynwyd, Pennsylvania-based asset management company.
The share price ($63.49 as of June 26) trades above the Peter Lynch earnings line, but still below the median historical valuation line.
The stock has a market capitalization of $3.34 billion and a 52-week price range of $36.27 to $76.31.
Hamilton Lane has a ROIC of 31.49%, which is almost five times the WACC of 6.48%.
Wall Street sell-side analysts recommend an overweight rating for the stock, which means the share price is expected to outperform either the industry or the entire market within a year. The average target price of $69 per share reflects 8.7% upside from Friday’s closing price.
Citrix Systems
The second company to qualify is Citrix Systems Inc. (CTXS, Financial), a Fort Lauderdale, Florida-based provider of computer software and cloud computing technologies to businesses worldwide.
The share price ($142.77 as of June 26) trades above the Peter Lynch earnings line, but still below the median historical valuation line.
The stock has a market capitalization of $17.63 billion and a 52-week price range of $90.28 to $155.1.
Citrix Systems has a ROIC of 18.88%, which is more than 25 times the WACC of 0.74%.
Wall Street sell-side analysts predict Citrix Systems will perform better than the average competitor in either the industry or the entire market as they have recommended an overweight rating. The average target price of $150.53 represents a 5.4% increase from the share price at close on Friday.
Crocs
The third company that makes the cut is Crocs Inc. (CROX, Financial), a Niwot, Colorado-based global manufacturer and distributor of casual lifestyle footwear and accessories.
The share price ($32.89 as of June 26) trades above the Peter Lynch earnings line, but is in line with the median historical valuation line.
The stock has a market capitalization of $2.22 billion and a 52-week range of $8.4 to $43.79.
Crocs has a ROIC of 24.4%, which is substantially higher than the WACC of 13.36%.
Wall Street sell-side analysts recommend an overweight rating for the stokc, so they anticipate the company will perform better than most competitors.
Disclosure: I have no positions in any securities mentioned.
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