Deutsche Bank Prefers These Low P/E Stocks in a Market Correction

Two factors are about ready to collide, and if history is any guide, the outcome could be ugly, at least for the short term. Since 1960, there have been only three years when the market did not experience a 5% correction at least once. Add to that, at 1,950 the S&P 500 is trading at 17.5 times trailing earnings and 15.8 times forward earnings. The trailing number is 1.4 points higher than the average posted since 1960, and the forward figure is 1.7 points higher.

Highlighting this data in a new research report, the equity strategy team at Deutsche Bank offers investors a good path to take. With the median price-to-earnings (P/E) ratio of most stocks and sectors entering their lofty 1997 to 2000 trading range, they say to overweight financials and underweight energy stocks. They also say to focus on the low P/E leaders.

Here are the top names to buy now from the Deutsche Bank S&P 500 Big and Low Basket. These stocks have big earnings weights in the index and low P/E ratios.

Cisco Systems Inc.‘s (NASDAQ: CSCO) recent earnings surprise helped to lift the stock after many disappointing reports over the past year continued to disappoint investors. Following up its solid quarter with another round of good earnings would be extremely encouraging, and higher spending levels could be just the ticket. We noted in a recent story that the networking giant could prove to be a good match with Rackspace as it is expanding its business in scale all over the globe. In addition, changes in technology make adding a large cloud computing entity a smart move for the Silicon Valley veteran. With more than $50 billion in cash, needless to say the company has the wherewithal to get a deal done. Investors are paid a 3% dividend. The Deutsche Bank price target for the industry network leader is $30. The Thomson First Call price target is $25.43. Cisco closed trading Friday at $24.70 a share.

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Citigroup Inc. (NYSE: C) has been a poor performer this year for investors and portfolio managers, down more than 10% year-to-date. The bank trades at an incredible 9.5 times forward earnings and is down 16.3% from highs printed last year. With loan activity and other banking services starting to ramp up as the economy improves over the second half, adding this quality large cap bank to a portfolio at an incredibly low price now makes good sense. Investors are paid a tiny 0.1% dividend. The consensus price target for the stock is $58.14. Citigroup closed Friday at $47.59.

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