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Haven't got a present for your dad this Father’s Day? Why not recommend him 5 safe stocks that any value investor would love? More conservative investors are likely to avoid high-risky plays in favor of those those with stable, slow-but-sound growth from companies with large market caps and secure earnings. They want a healthy dividend, a solid balance sheet, and they want them at a fair price.
And if your father falls into the category of the traditional value investor, he’s probably on the look-out for stocks like the ones we found with this screening methodology.
First, we looked at companies with Price-to-Book ratio lower than 1, and Price-to-Earnings ratio under 15, two factors that could mean that the stock is undervalued by the market.
P/B ratio is used to compare a stock's market value to its book value(also called its “accounting value”). Spend less money to buy a stock with larger intrinsic value is typically appealing, and P/B is one of the best metrics for identifying such an opportunity. Similarly, a high P/E usually suggests higher risk because many people may overpay for growth stocks, and the market is paying a higher multiple for the company’s earnings.
Second, we screened these stocks to contain only companies with a net profit margin over 20 percent and a gross profit margin over 30 percent. Profit margin shows how much out of every dollar of sales a company actually keeps in earnings, thus a high profit margin indicates a more profitable company keeping better control over its costs. For gross margin, a higher percentage represents the company retains more on each dollars of sales to serve its other expense, which means the stock is more likely to continue making shareholders money. For a stodgy old value investor, few things would matter as much as solid margins.
Finally, we screened out any stocks with dividend yield lower than 5 percent. Stocks paying high and stable dividend yields can mean a secure, stable cash flow. Something your father might love.
Finally, of the stocks that met the above criterion, we took the 5 stocks with the biggest market capitalization.
Apple Inc. (AAPL)
Market Cap.: $550.39 billion
Dividend%: 14.42%
P/E: 2.18
P/B: 0.66
Gross Margin: 37.90%
Profit Margin: 21.40%
Apple Inc. is a Cupertino, CA- based multinational corporation which designs, manufactures, and markets mobile communication and media devices, including personal computers and portable digital music players. As the largest pubic company by market cap, Apple's recent stock continue to surge in share price. Its current price is $91.28 per share, and is expected to hit $100 upon the arrival of new iPhone with a bigger screen to meet the growing demand for such devices. That dividend yield is actually based on the last dividend they paid, pre-stock split, and it will drop to 2.06 percent after getting adjusted. But that more-modest dividend doesn’t change the fact that Apple should have plenty of appeal for the classic value investor.
Apollo Investment Corporation (AINV)
Market Cap.: $2.00 billion
Dividend%: 9.46%
P/E: 7.49
P/B: 0.94
Gross Margin: 53.20%
Profit Margin: 71.00%
Apollo Investment Corporation is a US publicly traded private equity closed-end fund and an affiliate of Appollo Global Management (APO) . For the past 2 years it remains higher than $7 a share and has been in an uptrend throughout the period.
Fifth Street Finance Corp. (FSC)
Market Cap.: $1.30 billion
Dividend%: 10.70%
P/E: 10.87
P/B: 0.95
Gross Margin: 70.80%
Profit Margin: 44.80%
Fifth Street Finance Corp. is a business development company specializing in investments in middle market, bridge financing, first and second lien debt financing, mezzanine debt, senior and junior secured debt, expansions, sponsor-led acquisitions, and management buyouts in small and mid-sized companies. Its price was stable in the first half of 2014.
Prospect Capital Corporation (PSEC)
Market Cap.: $3.49 billion
Dividend%: 13.06%
P/E: 8.41
P/B: 0.90
Gross Margin: 56.40%
Profit Margin: 47.60%
Prospect Capital is a financial services company that primarily lends to and invests in middle-market privately-held companies.
SLM Corporation (SLM)
Market Cap.: $3.61 billion
Dividend%: 7.03%
P/E: 3.07
P/B: 0.72
Gross Margin: 65.80%
Profit Margin: 26.50%
SLM Corporation, together with its subsidiaries, operates as a financial services company specializing in education in the United States.
Finviz.com was used to collect the data used in this article.