Seagate Technology PLC (STX), D.R. Horton, Inc. (DHI) & Chevron Corporation (CVX): These Companies Are Undervalued

Moreover, the ten largest companies in the residential construction sector trade at an average earnings yield of 6.6%, and interestingly enough, achieve a lower return on equity and assets than D.R. Horton, Inc. (NYSE:DHI) on average. On average, D.R. Horton’s ten largest peers achieve 8.8% return on assets and 21% return on equity, while D.R. Horton, Inc. (NYSE:DHI) has produced a 14.5% return on assets and a 29.5% return on equity for the trailing twelve month period.

Lastly, Chevron Corporation (NYSE:CVX), a great company, and according to earnings yield, trading at a great price. Last year, Chevron earned $13.24 per share, at a current share price of $124, this equates to an earnings yield of 10.7%, indicating that Chevron Corporation (NYSE:CVX) is cheaper than the general market. That said, it would appear that the most of the major oil & gas sector companies are also trading at valuations that signify they are undervalued compared to the wider market.

For example, Exxon Mobil Corporation (NYSE:XOM) has an earnings yield of 10.5% and Royal Dutch Shell plc (ADR) (NYSE:RDS.B) has a yield of 11.9%. Still, Chevron Corporation (NYSE:CVX) appears to be one of the most undervalued, trading at a TTM P/E of 9.4 compared to the sector average of 11.3, and a return on equity of 19.2% compared to the sector average of 17.2%. The company also has a higher operating profit margin of 18.7% compared to the sector average of 13.4%.

Foolish summary

Earnings yield is a valuation method used to compare companies to their peers and to the wider market and bonds. According to this metric, these three companies are all undervalued and even after their recent gains, there could be some upside left. Still, even if there is no upside in the near-term, longer term, these companies present an attractive buy and hold investment while the valuation gap closes.

The article These Companies Are Undervalued originally appeared on Fool.com.

Rupert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.