Value or Value Trap: Meet the 21 S&P 500 Stocks Valued Under 10 Times Earnings

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The bull market is now well over eight years old, and investors are looking for new ideas for how they should be investing their money. Stocks, bonds and commodities are all frequently called out by the financial media and by analysts as being expensive. Maybe the stock market does feel expensive overall with the S&P 500 Index valued at 18 times expected 2017 earnings. That being said, investors can still find some value out there.

As of the start of May of 2017, just 21 members of the S&P 500 Index were valued at less than 10 times expected earnings per share (EPS). It is important to understand that not all “value” is created equally. In fact, seasoned value investors know that “cheap stocks” generally look that way for a reason. Many value stocks end up not being cheap at all if you consider the big picture.

There are many internal and external issues for investors to consider when it comes to value investing. A lack of growth, having spotty earnings, having temporary or long-term operating issues, or even being involved in restructurings can make all make companies look cheap when they might be nothing more than a value trap. One issue that can smooth out the trustworthiness of a price-to-earnings (P/E) ratio can be the company’s dividend yield. The relative value of a share price today versus the Thomson Reuters consensus analyst price target is also used by many investors to determine if a company is overvalued or undervalued.

24/7 Wall St. has screened the stocks in the S&P 500 Index. Just 21 of the 500 companies were valued under 10 times the consensus forward EPS. This forward P/E ratio can also be misleading over what exactly “cheap” means as some industries always trade at depressed P/E ratios against the broader market. These are also adjusted earnings used by analysts and most investors, so the estimates do not include one-time and non-recurring expenses and non-operating items like stock options costs.

There are many times that financial stocks trade at or under 10 times expected earnings. Airlines and autos often have P/E ratios under 10, and currently the retail environment seems to specialize in low P/E ratios while they get Amazon’d more and more each year. Some aspects of biotech and health care are also valued under 10 times earnings due to spotty growth or to recent developments.

24/7 Wall St. used a screening tool from Thomson Reuters for P/E and forward P/E ratios, and the focal issue is companies trading at less than 10 times its next full year’s estimated EPS. The one caveat is that many companies have fiscal years that are not calendar years.

In our screening, the gain over the past year is a total return screen from FINVIZ, which should generally include dividend yields, and the numbers have been rounded to the closest percentage point. With the S&P 500 having risen 17% from a year ago, it should speak for itself with so many negative performances that value is not always cheap.

Here are the 22 stocks of the S&P 500 Index valued at less than 10 times expected earnings.

American Airlines
> Price: $42.58
> Current P/E: 8.86
> Forward P/E: 9.11
> 1-Year Return: 19%

American Airlines Group Inc. (NASDAQ: AAL) recently found itself beating earnings estimates, but shares fell on higher labor costs. The airline industry rarely commands a high earnings multiple for a valuation, but now Warren Buffett is a major airline investor. The industry has been able to get away with almost everything regarding how it charges and treats passengers, but it is still screening as being less than 10 times earnings — but that is double what investors were valuing the industry in the past.

American Airlines has a 52-week trading range of $24.85 to $50.64 and consensus analyst target price of $54.00. The company has a market cap of $21.4 billion, and its dividend yield is 0.9%.

Bed Bath & Beyond
> Price: $37.51
> Current P/E: 8.47
> Forward P/E: 9.01
> 1-Year Return: −19%

Being in the brick-and-mortar retail segment has been tough for this household items seller. That was not always the case, as its highly concentrated client base used to be so predictable that the company never really even had to worry about retail business cycles. That was then, and now Bed Bath & Beyond Inc. (NASDAQ: BBBY) seems to be unable to recover on its own.

Bed Bath & Beyond has a consensus target price of $39.05 and a 52-week range of $37.28 to $48.83. The company has a market cap of $5.5 billion, and its dividend yield is 1.5%.