8 Great Value Stocks With Solid Dividends Under 10 Times Earnings

September 24, 2015 by Jon C. Ogg

Now that stocks have finally sold off, the stock market is in price discovery mode for a proper valuation. Many stocks are starting to look incredibly cheap, based on common valuation metrics. One method of determining whether valuations are cheap is a traditional price-to-earnings (P/E) ratio. It turns out that after the sell-off there are now many more solid and well-established dividend-paying companies valued at less than 10 times earnings.

24/7 Wall St. has decided to evaluate eight such companies with a P/E ratio of less than 10. This is a classic screen for the “value stocks” that many investors and fund managers look for as potential targets of activist investors, buyout bait and other shareholder-friendly restructuring efforts.

Before investors blindly pile in here, they need to consider that “cheap stocks” are almost always cheap for a reason. That reason may be the company’s business segment, it may be due to missteps by management or it may be due to outside pressures that make investors nervous. Generally speaking, stocks trading under 10 times earnings do not have much growth. Growth stocks tend to be valued at multiples above the market, if their growth trend is expected to continue.

In our screen for stocks under 10 times earnings, we evaluated large-cap companies, with easily recognized company names in mind. Only two of these eight stocks have a market value under a baseline of $5 billion to $10 billion and two are valued over $100 billion. These stocks all have dividends, with an average yield of about 2.7%.

The valuations of 10 times earnings and less were based on Thomson Reuters consensus estimates for 2015 and 2016. 24/7 Wall St. has highlighted why each of these stocks is or may be valued under peers and the market. Again, “cheap stocks” screen as cheap for a reason.

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Aflac

This insurance giant has seen its shares dribble lower from highs, but Aflac Inc.’s (NYSE: AFL) valuations are dirt cheap. Its supplemental health insurance policies come on the cheap with higher margins, all of which may point to a higher dividend payout down the road. The financial boutique Keefe Bruyette & Woods recently raised its rating to Outperform due to no equity risk and due to lower interest rate risks coming with a solid portfolio. The insurance company is valued at 9.5 times expected 20155 earnings and is valued at 9.0 times expected 2016 earnings.

Shares of Aflac closed Wednesday at $57.42. The stock has a consensus analyst price target of $67.44 and a 52-week trading range of $51.41 to $65.10. It has a dividend yield of 2.7% and a market cap of nearly $25 billion.

Dana

Dana Holding Corp. (NYSE: DAN) is into auto parts via driveline and power systems, and the company is now over 100 years old. Shares have sold off handily, but the company was selected to supply the key components for Oshkosh’s new JLTVs order. Dana is valued at 8.5 times earnings and less than 8.0 times next year’s earnings. Maybe the company should consider a better dividend payout ratio than the current 12% or so that it uses for paying shareholders.

Dana shares closed trading at $16.34, within its 52-week trading range of $15.59 to $23.48. The stock has a consensus price target of $21.80 and a market cap of $2.6 billion. Its dividend yield is 1.4%.

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Gilead Sciences

The largest biotech in the world now is Gilead Sciences Inc. (NASDAQ: GILD). Its shares are still down $20 from the highs, and the controversy and rapid gains from Solvaldi for hepatitis C have created a value conundrum that just sounds dirt cheap for a big biotech outfit with high ambitions. Gilead’s future growth story is partly to blame here, as most of its growth has happened, but it is valued at only about nine times earnings expectations for 2015 and 2016.

Gilead shares were recently trading at $105.49, handily below its consensus analyst price target of $125.06. The stock has 52-week trading range of $85.95 to $123.37 and a market cap of $155 billion. Its dividend yield is 1.6%.

IBM

International Business Machines Corp. (NYSE: IBM) screens as cheap, and Warren Buffett may be its biggest cheerleader, but many investors know this “cheapness” is due to financial engineering. IBM has had no growth of late and it continues to manage earnings per share via buybacks and cost cuts. Still, IBM is valued at only about nine times an average of 2015 and 2016 earnings expectations. Restructuring opportunities continue to be available, and if things continue this way there could be a management change ahead.

Big blue shares closed most recently at $143.66, in its 52-week trading range of $140.62 to $192.50. The consensus analyst price target is $158.75. It has a dividend yield of 3.6% and a market cap of about $141 billion.

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MetLife

MetLife Inc. (NYSE: MET) is now no longer treated as though it is a bank, but the insurance and financial services giant has a valuation that makes investors scratch their heads. After all, does less than eight times expected average earnings for 2015 and 2016 sound right? The problem is that earnings growth has stalled in 2015, and its sell-off of over 20% from recent highs may boil down to a perceived interest rate risk for when interest rates do finally rise.

Shares of MetLife closed at $46.52 on Wednesday. The consensus price target is $60.07, and the 52-week trading range is $44.49 to $58.23. It has a dividend yield of 3.2% and a market cap of $52 billion.

Seagate Technology

Seagate Technology PLC (NASDAQ: STX) always screens cheaply because disk drives and storage just keep getting cheaper. Consumers can now buy a 1 terabyte external drive for $50 to $60. Still, solid state drives and other storage efforts keep Seagate going. The stock has lost more than one-third of its value, it has a monster dividend yield after that selling pressure, and it is valued at less than nine times trailing and expected earnings. Seagate is technically Irish, but most of its investors are U.S.-based.

Seagate shares were recently trading at $43.55 and have a 52-week range of $42.96 to $69.40. The consensus price target is $54.95. The market cap is $13 billion and the dividend yield is 4.7%.

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Trinity Industries

This one may not be in an exciting industrial segment due to making products and systems for rail, highway, construction and barges, but Trinity Industries Inc. (NYSE: TRN) is behind much of America’s infrastructure in one way or another. Barron’s recently pointed out a lack of growth here, and earnings are expected to fall handily in 2016. Still, Trinity is valued at about five times expected 2015 earnings and is valued at less than six times 2016 expected earnings.

Shares of Trinity closed at $23.96, way below its consensus analyst price target of $35.56. The 52-week trading range is $21.79 to $48.46, and the market cap is $3.7 billion. It has a dividend yield of 1.7%.

Valero Energy

Valero Energy Corp. (NYSE: VLO) is in the refining segment, so it rarely gets the higher multiple that oil exploration and productions outfits get historically. Still, it is believed to be somewhat insulated from the woes of low oil prices and it is a serious leader in its field among peers. Valero also brings a decent dividend yield that has serious room to be increased ahead. It is valued at about seven times expected 2015 earnings, but due to an expected earnings drop it is valued at almost nine times expected 2016 earnings.

Valero shares closed at $59.82, in its 52-week range of $42.53 to $71.50. The consensus price target is $77.36. It has a dividend yield of 2.7% and a market cap of $30 billion.

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Again, “cheap stocks” are generally cheap for a reason. That is why we evaluated each potential eye-sore here in the sector or the company. Cheap stocks also tend to either languish or often get even cheaper against the market or peers before they turnaround. There are many other ways to establish value as well.