A Trio of Stock Picks for the Value Investor – Yahoo Finance

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– By Alberto Abaterusso

Selecting U.S.-listed equities that have the characteristics listed below represents a solid starting point when looking for potential value opportunities:

  • The shares are trading near or below their historical median valuations.

  • 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 among analysts on Wall Street.

Thus, investors may want to consider the following stocks as they meet the above criteria.

Rio Tinto

The first company that meets the criteria is Rio Tinto PLC (NYSE:RIO), a London-based metals and mining company.

The share price ($89.75 as of June 4) stands only a few steps above the median historical valuation line ($82.38) and is still below the Peter Lynch earnings line ($89.97), as the following chart illustrates.

A Trio of Stock Picks for the Value Investor

The stock has a market capitalization of $142.05 billion and a 52-week price range of $54.865 to $95.97.

Rio Tinto has a ROIC of 16%, which is more than three times the WACC of 5.2%.

As of June, the stock has a median recommendation rating of overweight with an average target price of $105.67 per share on Wall Street.

O’Reilly Automotive

The second stock that holds the criteria is O’Reilly Automotive (NASDAQ:ORLY), a Springfield, Missouri-based operator of stores for the sale of automotive aftermarket parts, equipment and accessories in the U.S.

The share price ($526.59 as of June 4) is above the Peter Lynch earnings line ($399.45), but still below the median historical valuation line ($574.98) as the following chart exhibits.

A Trio of Stock Picks for the Value Investor

The stock has a market capitalization of $36.74 billion and a 52-week range of $401.65 to $568.63.

O’Reilly Automotive has a ROIC of 25.52%, which is more than three and half times the WACC of 6.9%.

On Wall Street as of June, the stock has a median recommendation rating of overweight and an average target price of $595.95 per share.

Jack In The Box

The third stock that makes the cut is Jack In The Box (NASDAQ:JACK), a San Diego-based operator and franchisor of Jack in the Box quick-service restaurants in the U.S. and Guam.

The share price of $114.20 (as of June 4) is trading above the Peter Lynch earnings line ($102.6), but still significantly below the median historical valuation line ($154.29), as the chart below shows.

A Trio of Stock Picks for the Value Investor

The stock has a market capitalization of $2.54 billion and a 52-week price range of $67.33 to $124.53.

Jack In The Box has a ROIC of 11.77%, which is still well above the WACC of 9.14%.

On Wall Street as of June, the stock has a median recommendation rating of overweight and an average target price of $128 per share.

This article first appeared on GuruFocus.

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