The S&P 500 isn't as cheap as it was — it's up 3.6% this year after all. But analysts still spot relatively bargain-priced stocks due to rally.
Twelve stocks in the S&P 500, including Dish Network, Moderna and energy firm EQT, are cheap by current standards, trading for less than 10 times their adjusted earnings per share in the past 12 months, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. That's amazingly cheap if you consider the average stock in the S&P 500 trades for more than double that: 30 times earnings.
And yet, analysts think all 12 of those stocks will rally 25% or more in the next 12 months. If that's right, it would be a 2.5-times-better return than the S&P 500 in a typical year.
February's S&P 500 sell-off following a robust January reminded investors this market still faces plenty of turbulence, says Nicholas Colas of DataTrek Research. Some cheaper stocks might finally get some attention if investors pull back on the pricier investments that ran up already.
"The S&P 500 rallied 6.2% in January," Colas said. "While years with large January rallies almost always show strong double-digit returns, they usually occur during bull markets or when the Fed is cutting rates. Neither description fits the current market environment especially well."
S&P 500 Ignores Valuations For Now
Savvy investors know to not pay too much attention to P-E ratios. And they're ignoring them for now.
So far this year, only six of the top 10 performing S&P 500 companies even have a P-E. That's because four of the companies posted losses in the past four quarters. And get this: Two-thirds of the year's top 10 performing stocks this year that do have P-Es trade for higher valuations than the market. Take computer graphics-chip maker Nvidia as an example. Its stock is up nearly 60% this year, but it's trading for nearly 134 times its earnings.
But that's not to say analysts can't find some potential winners not yet bid up to such atmospheric valuations.
Finding The Next Winners On The Cheap
Analysts make no secret about their favorite cheap S&P 500 stock: Dish Network. They have sky-high hopes for the stock trading for just 3 times its adjusted profit per share in the past 12 months.
The stock is cheap, but analysts insist it shouldn't be. They claim shares of the satellite broadcasting company should be trading for 28.40 each in 12 months. If they're right, that would mark nearly 160% in implied upside. That's the most bullish outlook analysts have on any stock with a valuation this low. So far this year, it's not working out. Shares are down more than 21% to 10.98.
Analysts, though, are bullish not based on growth. It's more of a play on the stock being beaten down too much. In fact, the company's profit is seen dropping nearly 70% in 2023, before lifting 71% in 2024. When you're only paying three times profit, though, you don't need much growth, analysts say.
Moderna? A Cheap S&P 500 Stock?
Given Moderna's huge opportunity to apply mRNA technology to many lifesaving techniques, it's surprising to see it's such a cheap stock. It only trades 6.9 times trailing profit because profits have been so massive during the Covid-19 vaccination boom.
And while Moderna's stock is off 23% this year to 137.86, it's important to note it's still one of the top-performing S&P 500 stocks since the Covid-19 outbreak. And analysts are bullish. They're calling on Moderna stock trading for 222.06 a share in 12 months. If they're right, that's upside of 61%.
But again, the fundamentals are the reason the stock is cheap. Moderna is seen plunging to a loss of $2.24 a share in 2023 and another loss of $2.55 a share in 2024. The key with Moderna will be cooking up another breakthrough treatment and fast-track the return to profitability faster than 2026, which is what analysts are expecting.
Will some of these companies give investors more than they're paying for?
Cheapest S&P 500 Stocks With Huge Upside
Based on analysts' 12-month price targets
| Company | Ticker | Implied upside | P-E (12 month trailing) | Sector |
|---|---|---|---|---|
| Dish Network | 158.7% | 3.0 | Communication Services | |
| Moderna | 61.1 | 6.8 | Health Care | |
| EQT | 41.5 | 7.6 | Energy | |
| Organon | 36.4 | 6.7 | Health Care | |
| Signature Bank | 34.7 | 5.2 | Financials | |
| Marathon Oil | 29.2 | 4.9 | Energy | |
| General Motors | 27.9 | 6.4 | Consumer Discretionary | |
| APA | 27.6 | 3.6 | Energy | |
| Devon Energy | 26.7 | 6.1 | Energy | |
| Pioneer Natural Resources | 25.7 | 6.7 | Energy | |
| Pfizer | 25.5 | 7.4 | Health Care | |
| EOG Resources | 25.5 | 9.1 | Energy |
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
