Searching for U.S.-listed equities that have the following characteristics represents a solid starting point when looking for potential value opportunities, in my opinion:
The shares are trading near or below their historical median valuations and/or Peter Lynch earnings lines.
The return on invested capital surpasses the weighted average cost of capital, which suggests the company is creating value for shareholders.
The stock holds optimistic recommendation ratings on Wall Street.
Thus, investors may want to consider the stocks listed below, as they meet the above criteria.
The Scotts Miracle Gro Co
The first company that holds the criteria is The Scotts Miracle Gro Co. (NYSE:SMG), a Marysville, Ohio-based manufacturer and marketer of grass and other garden products.
The share price ($183.36 as of July 9) is above the Peter Lynch earnings line ($142.65), but it is still trading significantly below the median historical valuation line ($217.93), as the following chart illustrates.
The stock has a market capitalization of $10.21 billion and a 52-week price range of $136.44 to $254.34.
The Scotts Miracle Gro Co has a ROIC of 16.4%, which is almost twice the WACC of 8.4%.
As of July, the stock has a median recommendation rating of overweight with an average target price of $255.50 per share on Wall Street.
Turtle Beach Corp
The second stock that matches the criteria is Turtle Beach Corp (NASDAQ:HEAR), a San Diego, California-based developer of gaming headset solutions for video games, various entertainment consoles, personal computers and several other devices.
The share price ($30.60 as of July 9) is trading above the median historical valuation line ($26.66), but only slightly. It is still significantly below the Peter Lynch earnings line ($44.50), as the following chart exhibits.
The stock has a market capitalization of $484.11 million and a 52-week range of $16.01 to $38.70.
Turtle Beach Corp has a ROIC of 73.1%, which is more than six times the WACC of 11.7%.
On Wall Street as of July, the stock has a median recommendation rating of buy and an average target price of $40.50 per share.
Orion Energy Systems Inc
The third stock that meets the criteria is Orion Energy Systems Inc (NASDAQ:OESX), a Manitowoc, Wisconsin-based designer, manufacturer and implementer of energy management systems for several businesses as well as exterior area lighting and industrial applications in the U.S. and Canada.
The share price ($5.20 as of July 9) is lower than both the Peter Lynch earnings line ($12.60) and the median historical valuation line ($36.18), as the chart below shows.
The stock has a market capitalization of $161.19 million and a 52-week price range of $3.4 to $11.98.
Orion Energy Systems Inc has a ROIC of 87.9%, which is more than five times the WACC of 16.2%.
On Wall Street as of July, the stock has a median recommendation rating of overweight and an average target price of $10.63 per share.
Disclosure: I have no positions in any security mentioned.
This article first appeared on GuruFocus.
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