Here are the 10 cheapest stocks in the S&P 500 index
Super cheap stocks can give investors a nice margin of safety in a tough market.
An easy way to find them is to select stocks with the lowest price-to-earnings ratios. Barrons examined the S&P 500 index using
set of facts
data for the 10 companies with the lowest P/E ratios, based on projected earnings for 2022.
The 10 stocks are trading at valuations at lows of five times earnings or less, against the index’s P/E multiple of around 17.
They include industry leaders like
Nucor
(symbol: NUE) in steel,
DR Horton
(DHI) and
Lennar
(LEN) in residential construction, General Motors (GM) in automobiles,
Modern
(MRNA) in biotechnology, and Mosaic (MOS) and
CF Industries Holdings
(CF) in fertilizers. To complete the list is
Viatris
(VTRS),
Pulte Group
(MPH) and
PAA
(APA), formerly Apache.
There are two themes common to most actions. The first is that investors don’t believe the current high earnings will persist into 2023 and 2024. The second is that nearly all of these companies have strong balance sheets, which could mitigate downside risk.
| Company / Symbol | Recent Price | Change since the beginning of the year | 2022E EPS | 2022E P/E | Dividend yield |
|---|---|---|---|---|---|
| Viatris / VTRS | $11.62 | -14.1% | $3.48 | 3.4 | 4.2% |
| DR Horton/DHI | 67.88 | -37.4 | 5:44 p.m. | 3.9 | 1.3 |
| Pulte Group / PHM | 42.77 | -25.2 | 10.95 | 3.9 | 1.4 |
| Mosaic / MOS | 61.13 | 55.6 | 13.89 | 4.2 | 1.0 |
| APA / APA | 43.13 | 60.4 | 9.65 | 4.3 | 1.2 |
| Nucor / NUE | 125.05 | 9.5 | 26.22 | 4.6 | 1.6 |
| Lennar / LEN | 74.50 | -35.9 | 16.09 | 4.6 | 2.0 |
| Modern / MRNA | 140.69 | -44.6 | 27.88 | 4.9 | Nothing |
| CF Industries Holdings / CF | 100.40 | 41.8 | 7:34 p.m. | 5.0 | 1.6 |
| General Motors / GM | 35.40 | -39.6 | 7.01 | 5.0 | Nothing |
E=estimate
Source: FactSet
Homebuilders account for three of the 10 stocks. The group was hammered in 2022, with Horton and Lennar down 35% or more. The fear is that the robust housing market conditions will deteriorate by 2023, due to a two percentage point increase in mortgage rates this year, to more than 5%, and the sharp rise in house prices. over the past two years.
Real estate bull Stephen Kim of Evercore ISI wrote recently that “the setup is particularly intriguing as homebuilding stocks are priced as if the industry’s demise were a foregone conclusion.”
Horton, Lennar and Pulte are all trading around four times 2022 forecast earnings, with Lennar at around $75 earning only a small premium to book value. Lennar’s super-voting Class B shares (LEN/B) are even cheaper, at $63. The industry’s balance sheets have never been better and companies like Pulte are buying up a lot of shares.
Moderna shares, at around $137, are down 70% from their peak of nearly $500 last year and are trading for just five times 2022 earnings forecast of around $28 per share.
Investors fear Covid vaccine sales, which account for nearly all of Moderna’s revenue, will fall sharply in 2023 and earnings will plummet to $9 a share. Sales of Covid vaccines, however, could prove more sustainable than analysts fear, and the company is developing a series of new drugs. The drop could be limited since Moderna has $19 billion in cash, or about $47 per share.
Barrons wrote favorably of GM recently, arguing that the stock, now around $36, offers a cheap play on the company’s ambitious plans in electric vehicles. GM is valued at just five times projected 2022 earnings.
Nucor is North America’s largest steel producer and has thrived on soaring steel prices over the past 18 months. Investors fear that steel prices, currently around $1,200 a ton, could fall below $1,000 later this year. Part of that concern, however, is reflected in Nucor’s share price. At around $125, it is down from the recent high of $188.
Credit Suisse analyst Curt Woodworth has an outperform rating and a price target of $165, but he’s not thrilled about Nucor’s recent expensive deal for garage door maker CHI Overhead Doors. He wrote that cheap Nucor shares are worth more than the $3 billion CHI deal.
Fertilizer stocks have been supported by high prices that investors fear will persist. As a result, Mosaic and CF Industries are trading for four to five times estimated 2022 earnings. JPMorgan analyst Jeff Zekauskas calls Mosaic “the cheapest agricultural company.”
It has a price target of $80, down from a recent price of $61. The company is taking advantage of high potash prices in part due to tight supplies from Russia and Belarus.
APA produces oil (about half of its production) and natural gas in the United States and around the world, including Egypt. Like many in the industry, APA has increased its capital returns to shareholders, although it favors share buybacks over dividends. Its yield is only 1%.
JP Morgan analyst Arun Jayaram favors the APA, citing a free cash flow yield of around 20%, and has a price target of $56, down from a recent price of $43.
Generic drug maker Viatris is still a cheap stock, but that hasn’t translated into strong returns for investors due to tough industry conditions. He also has a large debt. The company was formed from the merger of Mylan and
Pfizer
it is
Upjohn Division in 2020.
Write to Andrew Bary at [email protected]