3 promising stocks with a high G
Trying to identify which stocks have the potential to outperform the market can be a difficult exercise. One way to screen potential investment opportunities is to consider using the GuruFocus GF score. The GF score takes into account financial strength, growth, profitability, momentum and value to assign each stock a score out of 100.
Stocks with higher scores often outperform those with lower GF scores.
This article will look at three names that meet the following criteria:
- A GF score of at least 90 out of 100.
- A dividend yield of at least 3%.
- Trades at a double digit discount to GF value.
The first is Broadcom Inc. (AVGO, Financial), a leading supplier of semiconductors. The Company’s products include radio frequency amplifiers, filters, front end modules and light emitting diodes. Broadcom operates three business segments, including industrial and automotive electronics, wireline infrastructure and wireless communications. The company is valued at $202 billion and generates revenues of more than $27 billion annually.
Broadcom has a very high GF score of 94 out of 100. The company has a 9 out of 10 in profitability, as Broadcom leads its industry group on almost every measure, including an operating margin of 11.1 % that outperforms 95% of its peers and a return on capital of 46.7% above 98% of the competition. Over the past decade, the company has produced profitable results in nine of those years, outperforming 75% of its peers.
The company’s worst performance is in financial strength, where GuruFocus assigns a score of 5 out of 10. This is largely due to low scores for cash-to-debt, equity-to-assets, and debt-to-equity ratios. There are some positives as Broadcom’s Piotroski F-Score, which assesses a company’s financial strength, is 7 out of 9. The company also sees a good return on its invested capital. It has a return on invested capital of 16.9%, which compares well with its weighted average cost of capital of 8.4%.
Broadcom has increased its dividend for 11 consecutive years. The dividend is expected to continue to grow as the company has a projected payout ratio of 44% for 2022, which is higher than the 10-year average payout ratio of 33%, but nearly identical to the five-year payout ratio of 45% . Broadcom shares are returning 3.3%, more than double the S&P 500 average return of 1.6%.
Broadcom is trading below its intrinsic value according to the GF Value chart.
The stock closed Wednesday’s trading session at $499.11. With a GF value of $561.96, the stock has a GF price-to-value ratio of 0.89. Broadcom could return 12.6% if it hits its GF value. Including the dividend, total returns could be in the mid-double digit range. Broadcom is considered slightly undervalued by GuruFocus.
The next topic of discussion is Crown Castle Inc. (ICC, Financial), a leading real estate investment fund specializing in the ownership and operation of cell towers. The trust has more than 40,000 cell towers in its portfolio, the majority of which are leased to major wireless carriers AT&T Inc. (J, Financial), Verizon Communications Inc. (VZ, Financial) and T-Mobile US Inc. (TMUS, Financial). Crown Castle generates over $6 billion in annual revenue and trades with a market capitalization of $74 billion.
Crown Castle’s GF score is 92 out of 100. The trust has a pretty solid ranking in most of the areas that determine this score. Growth and momentum are both perfect 10 out of 10. When it comes to growth, Crown Castle’s three-year free cash flow growth rate of 23.5% is higher than its group’s 84% growth rate. peers, while the three-year earnings per share without non-recurring items growth rate of 29.5% exceeds three quarters of the competition. Looking ahead, the trust’s total return six months ago versus a month ago is 8.5%, better than the industry group’s 84%.
The REIT’s weakest area is financial strength, where it scores just 3 out of 10. lowest scores. in the last decade of Crown Castle. On the positive side, the trust has a high F Piotroski score of 8 and its ROIC of 5.8% is higher than its WACC of 3.9%.
Crown Castle has increased its dividend for seven consecutive years. The projected payout ratio for this year is 76%, which is reasonable for a REIT. For more context, the average payout ratio since 2017 is 84%. The yield is currently 3.4%.
Stocks appear to be offering a solid upside against GF value.
Crown Castle closed Wednesday at $170.83 and has a GF value of $188.34, giving the stock a GF price-to-value ratio of 0.91. The company could generate a return of 10.2% before the dividend is taken into account. The trust receives a reasonable value rating.
The last name to be discussed is Watsco Inc. (BSM, Financial), specializing in heating, ventilation and air conditioning equipment. The company, which operates in the United States, Canada and Mexico, sells its products to commercial and residential customers. The $10.6 billion company had revenue of just over $6 billion in 2021.
Watsco has a very high GF score of 96 out of 100. The company receives at least a 7 out of 10 on every metric that makes up the ranking. The growth ranking is a perfect 10 out of 10, led by three-year revenue growth and future revenue growth of 10.3% and 11.3%, respectively. In both cases, the scores are better than nearly three-quarters of the industry. The profitability ranking is 9 out of 10, with Watsco well ahead of its industry and its own historical performance. The 25% return on investment exceeds 92% of peers and is the company’s best performance in the past decade.
The value ranking lags behind Watsco, but still receives a solid 7 out of 10. The price-earnings ratio and price-earnings ratio without NRI of 20.5 are worse than 75% of the competition, but at the lower end of the action. valuation over the last 10 years.
Watsco has a nine-year dividend growth streak, which is expected to continue as the expected payout ratio for this year is 60%. This is below the 10-year average payout ratio of 72% and would be the lowest since 2015 if reached. The title yields 3.2%.
Stocks appear to have the highest upside potential of the three names discussed.
Watsco is trading at $273.54. The GF value is estimated at $322.76, giving a GF price/value ratio of 0.85. If the stock reached its GF value, shareholders would see an 18% return on the stock price. The dividend could push total returns beyond the 20% threshold. Watsco is considered slightly undervalued.
The GF score takes into account several factors when ranking stocks. With higher-rated stocks often outperforming those with lower scores, investors can use the ranking system to develop a watchlist of potential investments.
Broadcom, Crown Castle and Watsco are three stocks that have GF scores in the 90s. They all trade at a discount of at least 10% to their intrinsic value and each stock has a dividend yield that is double of the average of the S&P 500 index.
For investors looking for value and yield, each stock could be a solid addition to their portfolio.