According to the Peter Lynch Growth Screen, a Premium All-in-One Screener template, five stocks with high financial strength, good revenue growth and are trading below the Peter Lynch earnings line as of Tuesday are Big Lots Inc. (NYSE:BIG), The Cooper Companies Inc. (NYSE:COO), Emergent BioSolutions Inc. (NYSE:EBS), SPAR Group Inc. (NASDAQ:SGRP) and Worthington Industries Inc. (NYSE:WOR).
Lynch, who managed the Fidelity Magellan Fund during the 1980s, wrote in his book “One Up on Wall Street” that one can quickly measure a stock’s valuation by comparing the stock’s price to a fair value at 15 times earnings. A stock is undervalued if it trades below a price-earnings ratio of 15.
GuruFocus’ Peter Lynch Growth Screen also looks for stocks with 10-year revenue growth of at least 6% and a business predictability rank of at least two stars out of five. To further narrow the list of companies to high-quality stocks, one can require a financial strength rank of at least 6.
The Screener listed five companies meeting the above criteria as of Tuesday.
GuruFocus ranks the Columbus-based discount retailer’s profitability 7 out of 10 on several positive investing signs, which include a high Piotroski F-score of 7, a three-year revenue growth rate that outperforms over 73% of global competitors and an operating margin that tops more than 80% of global defensive retail companies.
Big Lots’ financial strength ranks 6 out of 10 on the back of a high Altman Z-score of 4.11 and debt ratios outperforming over 66% of global competitors. Gurus with large holdings in Big Lots include Pioneer Investments (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio)’s GMO.
The Cooper Companies
Shares of The Cooper Companies (NYSE:COO) traded around $388.98, approximately 8.98 times its earnings per share. The company’s price-earnings ratio is near a 10-year low and outperforms more than 91% of global medical device companies.
GuruFocus ranks the San Ramon, California-based medical company’s financial strength 6 out of 10 on the back of a strong Altman Z-score of 5.19 despite debt ratios underperforming over 60% of global competitors.
Shares of Emergent BioSolutions (NYSE:EBS) traded around $79.25, approximately 14 times its earnings per share. Despite this, the stock’s price-earnings ratio is near a five-year low; further, the stock is significantly undervalued based on Tuesday’s price-to-GF Value ratio of 0.66.
GuruFocus ranks the Gaithersburg, Maryland-based drug manufacturer’s profitability 8 out of 10 on several positive investing signs, which include a three-star business predictability rank, a high Piotroski F-score of 7 and profit margins and returns outperforming over 88% of global competitors.
GuruFocus ranks the White Plains, New York-based merchandising and marketing company’s profitability 8 out of 10 on several positive investing signs, which include a high Piotroski F-score of 8, a three-star business predictability rank and an operating margin that has increased approximately 13.8% per year on average over the past five years.
GuruFocus ranks the Columbus-based manufacturing company’s profitability 7 out of 10 on the back of a high Piotroski F-score of 7 and returns outperforming over 98% of global competitors despite operating margins topping just over half of global industrial companies.
Disclosure: The author has no positions in the stocks mentioned. The mention of stocks in this article do not constitute a recommendation. Investors must do their own diligent research before investing in the stock market.
Different valuation methods may produce different valuation zones: A stock may be undervalued based on the Peter Lynch earnings line yet overvalued based on its price-sales ratio or our exclusive GF Value method.
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