Lowest P/E Large Cap Stocks to Buy -- Even at Market Highs
Most Wall Street equity strategists agree the market actually went in to secular bull market status in March of 2013, when the market established new highs. Since 1950, the average secular bull market started from a mid-teens price-to-earnings (P/E) ratio, lasted a little over 2.5 years on average, delivered double-digit annualized returns and usually ended upon the onset of a recession, usually achieving a price peak at a P/E above history’s average.
In a new research report, the analysts at Deutsche Bank point out that currently at the 1,850 level, the S&P 500 is trading at 16.9 times trailing earnings and 15.6 times forward earnings; the trailing P/E is one point higher than its average since 1960 and the forward P/E is 1.5 points higher. That does not mean valuation cannot expand. What is does indicate is investors should look for top stocks that are cheaper.
We screened the Deutsche Bank list for the top stocks with the lowest P/E on forward earnings. We found seven top names trading under a 10 P/E on forward earnings.
Citigroup Inc. (NYSE: C) makes the list, trading at just 9.9 times forward earnings. In addition, like many current stocks, Citigroup is right in the middle of its 52-week price range and not trading at all-time highs. With a tremendous global business model, the bank is a solid holding for investors. Citigroup still just pays a tine 0.1% dividend. The Thomson/First Call consensus price target for the stock is $60.17. Shares closed Friday at $48.63.
General Motors Co. (NYSE: GM) is a top consumer discretionary name to buy, and trades at a low 9.8 times forward earnings. The stock was also on Deutsche Banks “what to buy now” list. The company has benefited from incredible sales in China to boost revenue. GM invested heavily in China and grabbed a big chunk of what is now the world’s largest auto market. GM delivered 2.84 million vehicles in China in 2012, representing 11% growth. The company sold 3.16 million vehicles there in 2013, which was an increase of 11%. Investors are paid a solid 3.3% dividend. The Deutsche Bank price target for the stock is $45. The consensus is $46.44. GM closed Friday at $36.20.
Hewlett-Packard Co. (NYSE: HPQ) is trading at a very low 7.9 times forward earnings. The company has had a remarkable comeback under the leadership of Silicon Valley veteran Meg Whitman. Whitman’s most important point for 2014 is her plan to use free cash flow in order to reduce the existing debt, repurchase new shares and maintain the dividend payout policy. All of this is in the best interest of shareholders. The company’s share in 1 gigabit E fixed switching improved 10 basis points, or one-tenth of 1%, year over year as it continues to benefit from its local presence and brand name (H3C) in China. Other U.S. vendors are increasingly challenged for new business in the region. Investors are paid a 1.9% dividend. The consensus price target is $31.78. HP closed Friday at $29.88.
J.P. Morgan Chase & Co. (NYSE: JPM) is another mega cap financial to make the list. The company trades at just 9.4 times forward earnings. Despite what seems like a constant cycle of government penalties and fines, trading blow-ups and almost every other conceivable issue, the iconic bank continues to push out tremendous earnings. With many of the problems in the rear-view mirror, the stock could be poised for years of growth. Investors are paid a 2.7% dividend. The consensus price target is $65.41. The stock closed Friday at $56.82.
MetLife Inc. (NYSE: MET) is a top insurance stock, and it trades at a low 8.9 times forward earnings. The company is a leading global provider of insurance, annuities and employee benefit programs. MetLife holds leading market positions in the United States, Japan, Latin America, Asia, Europe and the Middle East. Investors are paid a 2.2% dividend. The consensus price objective is $60.24. MetLife closed Friday at $50.67.
Prudential Financial Inc. (NYSE: PRU) is another top insurance name to buy, and it trades at a low 9.3 times forward earnings. With multiple products offered to clients, the company is a financial services leader with more than $1.1 trillion of assets under management, as of December 31, 2013. It has operations in the United States, Asia, Europe and Latin America. Investors are paid a 2.5% dividend. The consensus price target is $98.50. Prudential closed Friday at $84.58.
Valero Energy Corp. (NYSE: VLO) is a top energy name to buy, and it trades at a low 8.1 times forward earnings. The firm has seen solid earnings estimate revision activity over the past month, suggesting analysts are becoming a bit more bullish on the firm’s prospects in both the short and long term. Over the past month, current quarter estimates have risen from $1.18 per share to $1.32 per share, while current year estimates have risen from $5.71 per share to $5.79 per share. Shareholders are paid a 2% dividend. The consensus price target is $58.33. Valero closed Friday at $47.98.
All the stocks that make this list have three huge things in common. They all have forward earnings under 10 times, they all pay solid dividends and, most importantly, none of these seven stocks are trading at 52 weeks highs. Given historical data, we should have a year or longer for this current secular bull market to run. Investors looking to take profits and buy new names or put new capital to work should look at these very reasonable stocks.