A monthly screen for interesting stocks
As investors fret about overvaluation and the threat of correction, relative value stocks could provide a safe haven. This month we’re looking for a North American stocks that best their industry peers on a price-toearnings and price-to-book basis and als
As returns start to slow near the tail end of a bull run, there is always the temptation to take on extra risk to squeeze just a bit more out of the stampede. How about a company that happens to invest in riskier assets? Ares
Capital invests in private, non-investment-grade companies, but it has a good track record of mitigating that risk. Ares is currently trading at a steep discount to its peers, with a book value below one and a sub-10 price-to-earnings ratio (ver- sus an average of 16 for the sector), and its dividend yield is just shy of 10%. While the nature of this business and its double-digit yield should set off warning bells, JPMorgan analyst Richard Shane says the company is well positioned in a competitive investing environment due to its solid balance sheet and liquidity position.
Staples is another company that looks cheap relative to its peers. Over the past three years the office supply retailer has shuttered more than 300 stores, and may close 225 more by 2019 as leases expire. But it’s cheap, with a P/E and P/B 50% below other retailers. Growth of the economy will really steer this investment. “If macro trends were to make an unexpected rapid recovery, it would likely drive an earlier-than-expected rebound in top-line results,” notes JPMorgan’s Christopher Horvers.
Economic fears also have investors jittery about Gen
worth MI Canada. Amid concerns about the Canadian housing market, in overheated markets like Toronto and Vancouver as well as default-ridden Alberta, it’s easy to see why Canada’s largest private residential mortgage insurer is being discounted. Still, Genworth has largely avoided troubles associated with the macro picture. In its latest quarter the company’s loss ratio came in at 21%, three points lower than its prior quarter and below its expected range for the year.