Deep Value Stocks

A search for deep value on the JSE

This evening I decided to look for some deep-value shares on the JSE by screening for stocks trading at low valuation multiples whilst still focusing on quality stocks with good profit margins, a strong balance sheet and healthy returns. The specific criteria I used for the search has been listed below.

Profitability

Gross Profit Margin: > 20%

Operating Profit Margin: > 10%

Net Profit Margin: > 5%

Financial Performance

Return on Invested Capital: > 15%

Return on Assets: > 15%

Financial Position

Debt to Equity Ratio: < 40%

Current Ratio: > 1.5

Valuation

Price to Sales Ratio: < 5

Price to Earnings Ratio: < 10

Price to Free Cash Flow Ratio: < 15

EV to EBITDA Ratio: < 10

The results may not come as much of a surprise. Of the criteria listed only 5 stocks on the JSE met all the requirements. All five of the stocks identified are mining / resource companies. The companies that met the above criteria are as follows (listed from largest to smallest in terms of market capitalization):

1. Impala Platinum Holdings
2. African Rainbow Minerals
3. Exxaro Resources
4. Thungela Resources
5. Tharisa Plc