Investing 101: Ten Large-Caps That Still Have to Price in Analyst Estimates

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(List compiled by Becca Lipman. EPS data sourced from Yahoo! Finance, all other data sourced from Finviz.)

One interesting way to find undervalued stocks is by finding those that do not proportionally increase in price for a given increase inearnings per share (EPS) estimate.

To create this list we focused on large cap ($10B-$200B) stocks trading on the US markets. We started with a theoretical observation about P/E ratios.

If the Price/Earnings Per Share ratio is equal to some constant k, it follows that there should be a linear relationship between Price and Earnings per Share. In other words:

 

If P/E = K
then P = (K)(E)

 

If there is a mismatch between growth rates in projected earnings per share values and price, a mis-pricing may have occurred, presenting an opportunity to value investors.

All of the stocks listed below have seen an increase in the current year EPS analyst projection over the last 30 days. For every stock in this list, the price change has lagged the change in EPS projections. This indicates that these stocks may still have to price in the good news.

Yes, this approach isn't 100% accurate. There is no reason to believe that P/E should be equal to a constant at all times (that is, after all, a simplifying assumption to build a screen). But the goal here is to give you a starting point in finding potentially undervalued stocks.

Would you like to know more about any of the terms used above? Let's take a moment to review:

Market Capitalization (Market Cap): This is the total market value of a company's outstanding shares. It can be thought of as a measure of company's size. It can be calculated by multiplying the number of shares by the current price of the shares. Companies with higher market cap are considered to have more trustworthy information because they have greater histories of profitability and data.

Example, If company X has 15 million outstanding shares valued at $25 a share, the market cap would be $15M x $25 = $375M.  If Company's X's stock price rises to $30 then the new market value will be $450 Million ($15M x $30 = $450M).

Earnings Per Share (EPS) is the amount of profit that is allotted to each share of a company after dividends have been paid out. Higher EPS and faster EPS growth are both positive signs of profitability.

EPS = (Net Income - Dividends)/(Outstanding Shares)

Price-to-EPS is one of the most widely-used financial ratios. Although P/E values are not constant over time, if EPS is rising faster than price, then the P/E ratio is falling, which could be a sign that the stock is undervalued.


Do you think these names are undervalued? Use the list below as a starting point for your own analysis.

Analyze These Ideas (Tools Will Open In A New Window)

1. Access a thorough description of all companies mentioned
2. Compare analyst ratings for all stocks mentioned below
3. Visualize annual returns for all stocks mentioned

1. Morgan Stanley (MS): Investment Brokerage Industry. Market cap of $34.62B. Over the last 30 days, the current year EPS consensus has increased by 23.96% (from $0.96 to $1.19), while price decreased by 13.39% (from $20.69 to $17.92). The overall distance between changes is 37.35%. The stock is currently stuck in a downtrend, trading -13.92% below its SMA20, -17.64% below its SMA50, and -30.06% below its SMA200. The stock has performed poorly over the last month, losing 14.87%.

2. Wynn Resorts Ltd. (WYNN): Resorts & Casinos Industry. Market cap of $18.63B. Over the last 30 days, the current year EPS consensus has increased by 22.5% (from $4.4 to $5.39), while price decreased by 9.58% (from $164.89 to $149.1). The overall distance between changes is 32.08%. This is a risky stock that is significantly more volatile than the overall market (beta = 2.43). The stock has had a couple of great days, gaining 6.57% over the last week.

3. China Unicom (Hong Kong) Limited (CHU): Wireless Communications Industry. Market cap of $44.73B. Over the last 30 days, the current year EPS consensus has increased by 25.93% (from $0.27 to $0.34), while price decreased by 2.77% (from $19.52 to $18.98). The overall distance between changes is 28.69%. The stock has had a couple of great days, gaining 6.39% over the last week.

4. Dish Network Corp. (DISH): CATV Systems Industry. Market cap of $10.55B. Over the last 30 days, the current year EPS consensus has increased by 3.37% (from $3.26 to $3.37), while price decreased by 22.92% (from $30.67 to $23.64). The overall distance between changes is 26.3%. The stock has performed poorly over the last month, losing 23.17%.

5. Encana Corporation (ECA): Major Integrated Oil & Gas Industry. Market cap of $19.33B. Over the last 30 days, the current year EPS consensus has increased by 10% (from $0.5 to $0.55), while price decreased by 14.12% (from $30.6 to $26.28). The overall distance between changes is 24.12%. The stock has had a couple of great days, gaining 12.79% over the last week. The stock has performed poorly over the last month, losing 14.76%.

6. The Blackstone Group (BX): Asset Management Industry. Market cap of $15.45B. Over the last 30 days, the current year EPS consensus has increased by 13.45% (from $1.71 to $1.94), while price decreased by 10.66% (from $15.39 to $13.75). The overall distance between changes is 24.11%. This is a risky stock that is significantly more volatile than the overall market (beta = 2.33). The stock has had a couple of great days, gaining 15.16% over the last week. The stock has performed poorly over the last month, losing 12.81%.

7. Southwestern Energy Co. (SWN): Independent Oil & Gas Industry. Market cap of $13.88B. Over the last 30 days, the current year EPS consensus has increased by 6.7% (from $1.79 to $1.91), while price decreased by 15.22% (from $47.04 to $39.88). The overall distance between changes is 21.92%. The stock has had a couple of great days, gaining 15.03% over the last week. The stock has performed poorly over the last month, losing 16.1%.

8. KB Financial Group, Inc. (KB): Foreign Regional Banks Industry. Market cap of $15.11B. Over the last 30 days, the current year EPS consensus has increased by 2% (from $5.51 to $5.62), while price decreased by 19.79% (from $48.77 to $39.12). The overall distance between changes is 21.78%. This is a risky stock that is significantly more volatile than the overall market (beta = 2.01). It's been a rough couple of days for the stock, losing 11.05% over the last week.

9. Barclays PLC (BCS): Foreign Money Center Banks Industry. Market cap of $37.27B. Over the last 30 days, the current year EPS consensus has increased by 11.24% (from $1.69 to $1.88), while price decreased by 9.27% (from $13.48 to $12.23). The overall distance between changes is 20.52%. This is a risky stock that is significantly more volatile than the overall market (beta = 2.49. The stock has had a couple of great days, gaining 13.45% over the last week. The stock has performed poorly over the last month, losing 15.25%.

10. Baker Hughes Incorporated (BHI): Oil & Gas Equipment & Services Industry. Market cap of $28.17B. Over the last 30 days, the current year EPS consensus has increased by 4.09% (from $4.16 to $4.33), while price decreased by 16.14% (from $77 to $64.57). The overall distance between changes is 20.23%. The stock has had a couple of great days, gaining 12.14% over the last week. The stock has performed poorly over the last month, losing 14.28%.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks


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