There are still plenty of cheap stocks, even with the major indexes near record highs.
Barron’s screened the S&P 500 index and identified the 10 stocks with the lowest price-to-earnings ratios using 2022 profit projections, based on FactSet data.
The 10 least expensive companies include memory-chip makers Micron Technology (ticker: MU) and Western Digital(WDC), chemical producer LyondellBasell Industries(LYB), and life insurer Lincoln National(LNC). Nine of the 10 have P/E ratios below six. Lyondell has the highest multiple in the group, at 6.5 times estimated 2022 earnings.
The other six stocks are drugmakers Viatris(VTRS) and Organon(OGN); oil and gas producers Diamondback Energy(FANG) and APA(APA), formerly Apache; home builder PulteGroup(PHM), and insurer Unum(UNM).
Several of the stocks have had big gains over the past year, including Diamondback, Micron, and Lincoln National, but all remain cheap based on earnings.
10 in the Bargain Bin
Here are the 10 stocks in the S&P 500 with the lowest price-to-earnings ratios.
| Company / Ticker | Recent Price | Market Value (bil) | 1-Yr Price Change | 2022E* P/E Ratio |
|---|---|---|---|---|
| Viatris / VTRS | $14.82 | $17.9 | -10.8% | 3.9 |
| Unum Group / UNM | 26.14 | 5.3 | 38.8 | 4.8 |
| Diamondback Energy / FANG | 69.80 | 12.6 | 56.8 | 5.2 |
| Western Digital / WDC | 61.07 | 18.7 | 73.0 | 5.5 |
| APA / APA | 16.68 | 6.3 | 4.3 | 5.6 |
| PulteGroup / PHM | 52.43 | 13.6 | 12.1 | 5.6 |
| Organon / OGN | 33.61 | 8.5 | N/A | 5.7 |
| Lincoln National / LNC | 66.87 | 12.5 | 79.6 | 5.8 |
| Micron Technology / MU | 70.60 | 79.5 | 59.6 | 5.9 |
| LyondellBasell Industries / LYB | 100.36 | 33.5 | 43.8 | 6.5 |
*P/E ratio based on calendar 2022 estimates; E=estimate; N/A=not applicable
Source: FactSet
Why are the stocks so inexpensive?
Some like Viatris and Organon have ample, but manageable debt. Investors fear that profits may be peaking at companies like Micron, Lyondell, and Western Digital.
These concerns could be creating opportunities for investors. Micron, whose shares trade around $70, recently initiated a small dividend resulting in an 0.6% yield. J.P. Morgan analyst Harlan Sur wrote earlier this month that he expected Micron and its rivals to be “disciplined and prudent” about adding supply in the face of strong demand. He has an Overweight rating and a $140 price target on the stock.
Western Digital, at around $61, is a leading maker of flash memory. Morgan Stanley analyst Joseph Moore is upbeat on its prospects, giving the stock an Overweight rating and a $88 price target. He thinks the stock is too cheap given that he expects earnings of $10 a share next year.
Organon, a Merck(MRK) spinoff that has a portfolio of off-patent drugs and a women’s health business, recently reported better-than-expected earnings. It has set an $1.12 annual dividend, for a 3.3% yield at a recent price of $33.50.
Joe Cornell, the publisher of Spin-Off Research, has a Buy rating and a $45 price target on the stock. Organon has a “peer-leading” yield, he recently wrote, and potential “top-line growth and margin momentum over the medium-term.”
Viatris, a generic drugmaker spun off from Pfizer(PFE), has the lowest P/E in the S&P 500 at 3.9. Its shares recently traded below $15.
J.P. Morgan analyst Chris Schott was encouraged by the company’s second-quarter earnings report, but maintained a Neutral rating as he awaits more evidence of improving financial performance after a tough 2020. The stock has a 3% yield.
Energy stocks have experienced a sharp pullback since June 1 because of a drop in oil prices and a sentiment shift away from the sector.
Diamondback Energy, a leading exploration and production company in the Permian basin in Texas, has seen its shares drop to a recent $70 from $100. The company reported strong second-quarter results and boosted its dividend by 12.5% to an annualized $1.80 a share. The stock now yields about 2.6%.
Like many E&Ps, Diamondback has a high free-cash flow yield. J.P. Morgan analyst Arun Jayaram is upbeat on Diamondback and recently estimated its net asset value at $126 a share. APA produces oil and gas in the U.S. and overseas and offers a play on a potentially large offshore oil field off Suriname in South America. Its shares trade around $16.
Shares of PulteGroup, one of the largest U.S. home builders, have pulled back about 20% from a spring peak, to a recent $52 amid concerns about demand and pricing power.
Evercore ISI analyst Stephen Kim, one of the most bullish Wall Street analysts on the sector, sees rising profitability for Pulte and peers. He has an Outperform rating on Pulte and a $93 price target. He sees about $8 a share in earnings this year and an above-consensus estimate of roughly $12 next year.
Lyondell, the world’s third-largest independent chemical company, is a major player in plastics. Its shares recently traded around $100.Its CEO, Bob Patel, recently told Barron’s Jack Hough: “Whether we’re at peak, and is there a moderation or a hard reset—this is at the heart of the debate today with investors. I think there is strong demand in front of us.”
Lincoln National, which offers life insurance, annuities, and other financial products, recently traded around $67, less than six times projected 2022 earnings and below a conservative measure of book value of $75. J.P. Morgan analyst Jimmy Bhullar likes Lincoln National, recently citing an “improving business mix” and “discount valuation.” He has an Overweight rating and a $81 price target.
Unum, a provider of life and disability insurance, trades cheaply based on earnings and book value. That reflects in part concerns about its long-term care insurance reserves, which were strengthened in 2020. The stock, around $26, trades for about five times projected 2022 earnings and for half of book value.
