If you only invest in high-growth tech and biotech stocks, it may be a surprise that other companies may trade for less than 10-times earnings rather 100-times earnings. And it may also be a surprise how high some of their dividend yields can be.
When companies are growing rapidly, they get higher earnings multiples. When the growth is sporadic or contracting, they get much lower multiples. Still, the “dirt cheap value stocks” are often where stock screens lead investors into long-term opportunities that may be greatly undervalued in a turnaround, a special situation under development, or even as a potential takeover target.
Oggonomics has screened the S&P 500 Index and more than 50 of the 500 companies trade at or under 10-times expected earnings. This earnings multiple is actually less than half of the multiple of the overall S&P 500 as a whole. And the median forward P/E ratio in the index is about 18-times expected earnings. Now the trick is to find stocks that may still have great unlocked potential under normalized and improving conditions in their industries and economies.
Some of the “low P/E cheap stocks” are in businesses which traditionally command low multiples. And “cheap stocks” are almost always considered by Wall Street to be “cheap” for a reason. There is absolutely no assurance that “cheap” translates into gains ahead.
The information in this report has been provided for informational purposes. It is not investment advice and is not a recommendation to buy or sell any of these stocks. Oggonomics does not maintain any formal ratings or price targets of its own on these companies.
VIATRIS
Viatris Inc. (NYSE: VTRS) is the former generics spin-out from Pfizer that was combined with Mylan and began trading on its own in late-2020. It is a slow growth company because it operates in drugs which are generally off of patent protection, but that may also keep the DOGE boys from trying to get Medicare and Medicaid from trying to cut down their revenues since they are already cheap and usually have competition. At about 4.5-times forward earnings it has the lowest anticipated P/E ratio of all the S&P 500 players. And it has a 4.1% dividend yield.
CARS & MORE CARS
General Motors Company (NYSE: GM) is valued at about 5.5-times trailing earnings and about 4.8-times expected earnings. The world has plenty of cars and emerging markets all have their own cheap cars too. What GM is doing right is focusing on its winning car models and worrying less about others. And GM is buying back so much stock it could be a private company by the end of the decade at the pace it is buying the stock. It only has a 1% dividend yield, but dividend investors can always rotate into Ford Motor Co. (NYSE: F) if they want another cheap auto stock. Ford trades at 11 times normalized earnings but only about 6-times expected earnings a year out. Ford also has better than a 6% dividend yield.
AN INSURER
Everest Group Ltd. (NYSE: EG) is a reinsurance player and offers P&C insurance of its own. The market typically doesn’t pay high multiples for reinsurance companies because the financial risks can be great. Valued at about 5.7-times expected earnings, the 2.2% dividend doesn’t sound dirt cheap, but the $358 stock is toward the lower-end of a 2-year trading range. BMO Capital Markets just upgraded it in the last week to Outperform and gave it a $453 price target.
UTILITY OF SORTS
AES Corporation (NYSE: AES) is a very diversified utility and power generation. Its portfolio is very diversified with many renewable energy projects located throughout North, South and Central America and in Europe and Asia. It is difficult to value and its stock has been cut in half since the start of last summer. The 5.8% dividend yield sounds great now, but that means it was less than a 3% yield just six months ago. With a $8.4 billion market cap, imagine if the company ever decides to “streamline” its portfolio of projects to command the proper valuation. At just under $12 now, the stock was given a Buy rating and a $17 price target in mid-December (but BofA also gave it an ugly Underperform rating and $11 target just a month earlier!).
AUTOMOTIVE SUPPLIER
BorgWarner, Inc. (NYSE: BWA) is a parts and technology systems solutions provider for the auto industry — combustion, hybrid and electric vehicles alike. At about 7 times expected earnings it has a dividend yield of only 1.5%. And its stock is down about 10% since the election on potential tariff concerns and ongoing softness in the auto sector. The company always has a diversified plan of products and customers for generating its revenues and it’s not like the auto industry is going away. At $32 it is close to the bottom of a multi-year trading range and its consensus analyst target price is closer to $40.
AND SOME MORE…
Additional stocks have been shown below with less commentary:
- Paramount Global (NASDAQ: PARA) is merging with Skydance and the stock has been stuck in the mud.
- APA Corporation (NYSE: APA) is considered the cheapest oil and gas exploration company but its operations are spread out in the United States, Egypt, United Kingdom and offshore Suriname.
- Western Digital Corporation (NASDAQ: WDC) makes Flash drives and Hard Disk Drive and generally carries low sub-10 P/E valuations.
- Franklin Resources Inc. (NYSE: BEN) is the cheapest of the asset managers but it has been having problems and recent analyst reports show no massive upside expectations coming soon.
