Blog

Discover the Hidden Gems: 10 Cheapest Stocks in the S&P 500 You Must Consider Now!

Hannah Perry | October 24, 2024

Responsive image

Riding the Value Wave: Exploring the Cheapest Stocks in the S&P 500

Traders, the investment landscape is heating up with some of the biggest bargains to be found at the bottom of the S&P 500 barrel. As we dive into this treasure trove, we’ll discuss not just what to buy, but how to strategically navigate this treasure map of low P/E ratios amidst an expensive marketplace. Fasten your seatbelts; we’re in for an insightful ride!

The Current Market Landscape

As of now, the S&P 500 has inflated to a staggering average P/E ratio of **25 times earnings**, creating a contrast with several companies that are trading at just **4 to 8 times** projected earnings. This divergence raises eyebrows and offers significant opportunities for savvy traders looking to capitalize where others may fear to tread. Market strategists are bracing for dim returns, in line with the sentiments back in 1999, when the dot-com bubble was about to burst. With parallels being drawn to that era, analysts like David Kostin from Goldman Sachs predict a meager 1% annual return for the S&P 500 after inflation over the next decade.

Bargain Stocks to Watch

So what are these value gems? Here’s a detailed rundown of the current top contenders, those cheapest stocks that hold promise even in their current state:

  • Viatris – At a jaw-dropping **4.4 times earnings**, this pharmaceutical powerhouse offers a cash flow of over $2.3 billion yearly. Analysts project revenues to stabilize around 2026, making it a puppeteer of market volatility.
  • General Motors – This familiar name trades at **5.3 times earnings**. Following an impressive jump after raising its financial forecast, it shows promise as it transitions to electric vehicles (EVs).
  • Ford – Tick-tock, Ford trades at **5.9 times earnings** and awaits upcoming earnings results, which could fuel the momentum needed in the EV race.
  • Walgreens Boots Alliance – An industry titan, but it’s currently grappling with earnings challenges, trading at **6.5 times earnings**.
  • Everest Group – Selling insurance to insurers, this company holds firm with solidity and growth, trading at **6.5 times earnings**.
  • Paramount Global – A media giant trading at **6.6 times earnings**, it’s under scrutiny for its legacy business overshadowing streaming prospects.
  • Apache Corporation (APA) – In the energy sector, it trades at **6.5 times earnings**, responding to global adjustments in demand forecasts.
  • Devon Energy – Another energy player, trading at **8.2 times earnings**, is trying to navigate the ebbing crude oil prices.
  • United Airlines – Despite a staggering rise of **112%** recently, this airline still sits at **7.3 times earnings**, with potential to challenge its competitors’ pricing structures.
  • BorgWarner – With a market focus on providing components for both traditional and electric vehicles, this supplier finds itself at **8.3 times earnings**, making it an attractive play.

Strategic Value Investing: A New Approach

While these stocks represent some of the cheapest picks, there are two critical caveats for traders. The **S&P 500** minus the AI giants still appears pricey, and value investing requires deeper research than just opting for the lowest P/E ratios.

Given the looming potential of global equities, consider diversifying your investments with options such as the S&P 500 Pure Value and FTSE RAFI US 1000 funds, which tilt towards deeply valued characteristics. Additionally, firms like GMO advocate for a methodology that involves occupying both ends of the spectrum: buying the cheapest 20% of the market while shorting the most expensive 20% to leverage the potential of mispriced assets.

Conclusion: Stay Ahead of the Trend

Value stocks might be slow-burners, but they can provide positive surprises, as shown by the performance of some names over the past year. However, engaging in these opportunities does not guarantee future profitability. As we analyze these stocks, remain vigilant; the market is as volatile as ever. Do not let the allure of low P/E ratios be the sole driver of your decisions. Balance your portfolios wisely and keep a close eye on earnings announcements and market trends.

Gear up, traders! The cheap stocks in the S&P 500 might just bring the momentum you’ve been looking for. Remember, it’s not just about what is cheap, but also about what has the potential to turn into a winner. Happy trading!