Looking for U.S.-listed equities that have the characteristics listed below represents a solid starting point when screening the market for potential value opportunities, in my opinion:
- The shares are trading near or below their intrinsic value estimates, as indicated by the Peter Lynch earnings line.
- The return on invested capital exceeds the weighted average cost of capital, suggesting the company is creating value.
- The stock has optimistic recommendation ratings on Wall Street.
Thus, investors could be interested in the following stocks, as they meet the above criteria.
W&T Offshore Inc.
The first stock that meets the criteria is W&T Offshore Inc. (WTI, Financial), an independent oil and natural gas producer based in Houston, Texas. The company sells crude oil, natural gas liquids and natural gas. At the end of 2021, the company has mineral interests in 43 federal and offshore fields. The company also operates 606,000 gross acres under leases. These assets are located in the Gulf of Mexico.
The stock price ($7.12 per share on Aug. 26) is trading well below the Peter Lynch earnings line of $13.5 and below the median valuation line of $8.50.
The stock has a market capitalization of $1.02 billion and a 52-week range of $2.97 to $9.01.
The most recent year-end ROIC of 16.88% compares to a WACC of 12.12%.
On Wall Street, the stock has a median recommendation rating of buy and an average target price of $7.65 per share.
Destination XL Group Inc.
The second stock that qualifies is Destination XL Group Inc. (DXLG, Financial), a Canton, Massachusetts-based specialty retailer of clothing and footwear for tall men in North America. As of January 2022, the company operated 290 stores, an e-commerce website (dxl.com), a mobile website (m.destinationXL.com) and a mobile app.
The stock price ($5.58 per share on Aug. 26) is trading well below the Peter Lynch earnings line of $13.50 and the median historic valuation line of $10.30.
The stock has a market capitalization of $349.55 million and a 52-week range of $3.27 to $8.99.
The most recent year-end ROIC of 23.25% compares to a WACC of 7%.
On Wall Street, the stock has a median recommendation rating of buy and an average target price of $8.50 per share.
Ironwood Pharmaceuticals Inc.
The third stock that makes the cut is Ironwood Pharmaceuticals Inc. (IRWD, Financial), a Boston, Massachusetts-based drug manufacturer that develops and commercializes treatments to resolve gastrointestinal problems.
The stock price ($11.14 per share on Aug. 26) is trading well below the Peter Lynch earnings line of $15.15 and the median historic valuation line of $13.07.
The stock has a market capitalization of $1.71 billion and a 52-week range of $10.13 to $14.21.
The most recent year-end ROIC of 173.07% compares to a WACC of 7.33%.
On Wall Street, the stock has a median recommendation rating of hold with an average target price of $12.75 per share.
