Investing

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

Jon C. Ogg

Published: May 2, 2017 7:55 am

Last Updated: January 12, 2020 12:27 pm

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%.

Chesapeake Energy
> Price: $5.28
> Current P/E: N/A
> Forward P/E: 6.66
> 1-Year Return: −22%

Chesapeake Energy Corp. (NYSE: CHK) had not reported earnings as of this writing, and its adjusted earnings per share estimates are expected to be quite higher than the real earnings. This company has continued to look for a recovery, and its shares have already come down handily from its energy bounce.

Chesapeake has a market cap of $4.8 billion. The consensus target price is $7.17, and the 52-week range is $3.56 to $8.20.

Delta Air Lines
> Price: $45.73
> Current P/E: 7.85
> Forward P/E: 8.90
> 1-Year Return: 8%

The airline industry never really seems to command a high earnings multiple. As has been seen, the industry’s earnings can fluctuate wildly based on economic cycle swings. Still, Buffett is now an airline investor, and there is a belief that airline operators can get away with anything short of passenger abuse these days.

Delta Air Lines Inc. (NYSE: DAL) stock has a 52-week range of $32.60 to $52.76. The dividend yield is 1.8% and the total addressable market cap is $33.5 billion.

Express Scripts
> Price: $60.95
> Current P/E: 11.38
> Forward P/E: 8.80
> 1-Year Return: −18%

Being a pharmacy benefit manager led to growth on top of more growth, but a would-be loss of Anthem and an environment in which politicians have targeted the never-ending rise in drug prices has put a cloud over Express Scripts Holding Co. (NASDAQ: ESRX).

Express Scripts has a 52-week range of $57.80 to $80.02 and a consensus target price of $64.69. The total addressable market cap is $36 billion.

Ford
> Price: $11.467
> Current P/E: 9.98
> Forward P/E: 7.40
> 1-Year Return: −14%

Ford Motor Co. (NYSE: F) made it through the recession without a bailout, but the value trap for auto makers has been hard on it while it has seen its numbers cut. Ford has a high dividend but is not loved by investors. As with all auto stocks, this is a hyper-sensitive industry when it comes to economic expansion and contraction.

Ford has a consensus analyst target of $13.04. Shares have traded in the 52-week range of $11.07 to $14.04. The market cap is $45.7 billion and the dividend yield is 5.2%.

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General Motors
> Price: $34.235
> Current P/E: 5.77
> Forward P/E: 5.66
> 1-Year Return: 12%

General Motors Co. (NYSE: GM) hasn’t been able to escape the value trap for auto makers, even if it has a high dividend and even if it is now years past the bailout. This industry never seems to get much respect on a P/E basis, due to it being hyper-sensitive to economic expansion and contraction.

GM has a 52-week range of $27.34 to $38.55 and a consensus target price of $39.90. It has a market cap of $51.6 billion, and its dividend yield is 4.4%.

Gilead Sciences
> Price: $68.20
> Current P/E: 6.90
> Forward P/E: 8.33
> 1-Year Return: −27%

Having the cure for hepatitis C created a huge boom and brought in billions of dollars. It also created a major surge followed by no-growth, and then there is the specific drug price attack that was seen along with a more general drug price targeting climate of late. The world’s largest biotech is valued even cheaper than most Big Pharma stocks — with the caveat that “cheap” might not be cheap after big stock price drops.

Gilead Sciences Inc. (NASDAQ: GILD) has a consensus target price of $78.92 and a 52-week range of $65.38 to $89.45. The market cap is $89.3 billion and the dividend yield is 3.1%.

Goodyear
> Price: $35.85
> Current P/E: 7.62
> Forward P/E: 8.99
> 1-Year Return: 22%

Goodyear Tire & Rubber Co. (NYSE: GT) is of course tied to the auto sales trends, but one might wonder if there are many risks to buying tires. This company never seems to get a high P/E valuation compared with the market, and there is a longer-term secular fear that tires would get replaced even less in a fully automated driving world ahead. After all, no wrecks and slower driving is less wear and tear on tires.

Goodyear has a market cap of $9.0 billion and its dividend yield is 1.1%. The consensus target price is $37.63, and the 52-week range is $24.31 to $37.20.

Lincoln National
> Price: $66.08
> Current P/E: 13.10
> Forward P/E: 9.42
> 1-Year Return: 53%

Lincoln National Corp. (NYSE: LNC) has performed well over the past year, along with many financial stocks. Still, Wall Street hasn’t wanted to give it a high P/E valuation for what may feel like slower earnings growth in insurance and retirement.

Lincoln National has a consensus price target of $75.50. Shares trade in the 52-week range of $35.27 to $73.31. Its market cap is $14.9 billion and the dividend yield is 1.7%.

LyondellBasell
> Price: $83.82
> Current P/E: 9.27
> Forward P/E: 8.48
> 1-Year Return: 1%

LyondellBasell Industries N.V. (NYSE: LYB) operates in chemicals and polymers, refines oil, and produces gasoline blend components. This can all add up to currency woes and it can create spotty earnings, both of which can create a discounting against the market.

LyondellBasell has a 52-week range of $69.82 to $97.64 and a consensus target price of $98.10. The market cap is $33.7 billion and the dividend yield is 3.9%.

Macy’s
> Price: $28.74
> Current P/E: 14.67
> Forward P/E: 8.45
> 1-Year Return: −25%

Macy’s Inc. (NYSE: M) is one of the top retail destinations in America. Just don’t tell that to millennials and the rest of shoppers who are ditching their visits to the mall in favor of Amazon and online buying. The promise of new management ahead, and even a potential sale or real estate monetization effort, did not recapture investor losses here.

Macy’s has a consensus target price of $34.21 and a 52-week range of $27.72 to $45.41. The market cap is $8.8 billion. The dividend yield is 5.2%.

Mallinckrodt
> Price: $46.7862
> Current P/E: 10.70
> Forward P/E: 6.19
> 1-Year Return: −26%

After having grown after an acquisition, Mallinckrodt PLC (NYSE: MNK) has ended up in the heap of companies facing tougher times in the generic and branded pharma markets. Specific drug price targeting hurt here, as has an overall political climate of targeting drug prices.

Mallinckrodt’s market cap is $4.9 billion. The consensus target price is $73.14 and the 52-week range is $41.57 to $85.83.

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MetLife
> Price: $51.99
> Current P/E: 82.40
> Forward P/E: 9.77
> 1-Year Return: 17%

MetLife Inc. (NYSE: MET) is one of the top insurance companies in America, but the regulatory climate has created challenges. Investors continue to give MetLife a discounted valuation despite stable earnings growth expectations.

MetLife shares have a 52-week range of $37.17 to $58.09, and the consensus target price is $59.14. The dividend yield is 3.1%, and the total addressable market cap is $56.6 billion.

Michael Kors
> Price: $36.92
> Current P/E: 8.41
> Forward P/E: 8.95
> 1-Year Return: −29%

Michael Kors Holdings Ltd. (NYSE: KORS) is in the volatile apparel business. The growth numbers were massive in the past, but that never seems to last forever — ditto for having high-priced merchandise at a time when brick-and-mortar retailers end up unable to sell many items.

Michael Kors has a consensus analyst price target of $40.65. Shares have changed hands between $34.92 and $53.29 in the past year. The company’s market cap is $6.0 billion.

Micron Technology
> Price: $28.145000
> Current P/E: N/A
> Forward P/E: 6.48
> 1-Year Return: 138%

Micron Technology Inc. (NASDAQ: MU) is the U.S. king of the DRAM market, and it is going after NAND and other flash markets as well. Memory has been lucrative again, but this business has run into company-specific and industrywide challenges over the years.

Micron has a 52-week range of $9.35 to $29.87 and a consensus target price of $38.63. Its market cap is $31.3 billion.

Mylan
> Price: $37.54
> Current P/E: 40.50
> Forward P/E: 7.05
> 1-Year Return: −12%

Mylan N.V. (NASDAQ: MYL) has had great years and it has had not so great ones. The latter has been true of the past year. International woes, merger fights, specific targeting of its drug pricing and a political climate of targeting drug prices in general all added up against Mylan.

Mylan has a consensus target price of $51.24 and a 52-week range of $33.60 to $50.40. The market cap is $20.1 billion.

Navient
> Price: $15.25
> Current P/E: 7.19
> Forward P/E: 8.54
> 1-Year Return: 18%

Navient Corp. (NASDAQ: NAVI) holds the portfolio of education loans insured or guaranteed under the FFELP and holds a portfolio of private education loans. Navient separated from Sallie Mae in 2014, and this remains a controversial segment for investors, which may act as a value overhang.

Mylan has a consensus target price of $51.24 and a 52-week range of $33.60 to $50.40. Its market cap is $20.1 billion.

Seagate Technology
> Price: $42.06
> Current P/E: 51.30
> Forward P/E: 9.45
> 1-Year Return: 69%

Seagate Technology PLC (NASDAQ: STX) is a leader in storage, but Wall Street hates ever giving these companies high valuations as storage seems cheaper and cheaper each year. Still, look at how much the stock has risen.

Seagate has a 52-week range of $18.42 to $50.96 and a consensus target price of $46.58. The dividend yield is 6.0%, and a total addressable market cap is $12.5 billion.

Signet Jewelers
> Price: $65.74
> Current P/E: 9.50
> Forward P/E: 9.24
> 1-Year Return: −38%

Weathering the retail jewelry business is tough enough as is throughout business cycles and with the move to online buying. Now throw in major allegations of sexual harassment and more law firm investigations and class action suits. That’s where the owner of Zales, Kay and Jared finds itself, and that means that “estimates” should perhaps be given a major degree of scrutiny. If a company has to pay out tens or hundreds of millions in fines and has to spend endlessly to repair its reputation, all those sales and earnings might have some expectational risk.

Signet Jewelers Ltd. (NYSE: SIG) has a consensus analyst target of $86.42. Shares have traded in a 52-week range of $62.10 to $111.13. The market cap is $4.5 billion and the dividend yield is 1.9%.

United Continental
> Price: $70.98
> Current P/E: 9.49
> Forward P/E: 9.99
> 1-Year Return: 46%

United did take a reputational hit during its recent passenger abuse incident, but its stock actually held up better than you might have expected. It shouldn’t hurt that Buffett is now an investor after years (decades) of being anti-airline. Now United Continental has already settled with the battered doctor.

United Continental Holdings Inc. (NYSE: UAL) has a market cap of $22.3 billion. The shares have a consensus target price of $85.75 and a 52-week range of $37.41 to $76.80.