MW Six cheap stocks of S&P 500 companies expected to grow quickly through 2027
By Philip van Doorn
These stocks have also shown recent earnings momentum, with increases to consensus estimates
We are heading into the season of year-end predictions. Brokers will set new targets for stock indexes backed by expectations for economic growth and opinions on whether or not investors have become sufficiently concerned over high valuations for there to be a pullback in share prices. And some money managers will write entertaining pieces featuring predictions for 2026 along with confessions about how their 2025 predictions turned out.
So this is a good time of year to run stock screens.
Before moving on, let's emphasize that the S&P 500 SPX is weighted by market capitalization. It is now 41.2% concentrated in its 10 largest companies, which is the highest level of concentration since at least 1972, according to data compiled by Ned Davis Research. Here is a breakdown of the largest five companies held within the SPDR S&P 500 ETF Trust SPY, which tracks the U.S. large-cap benchmark index with the same weighting methodology:
You might need to scroll the columns or flip your screen to landscape to see all of the data in the table.
All total returns in this article include reinvested dividends. The S&P 500 has returned 17.5% this year through Friday, and its forward price-to-earnings ratio is 22.8. Price/earnings valuations are discussed further below.
SPY holds Alphabet's Class A $(GOOGL)$ and Class C $(GOOG)$ shares, and these holdings are combined in the ranking on the table. The total return shown is that of the Class A shares. Through Friday, the Class C shares returned 48.5% this calendar year.
These five companies make up nearly a third of the SPY portfolio. And the predominance of this group emphasizes how important the artificial intelligence hardware and technology build-out has been during this bull market.
In a note to clients on Friday, a group of analysts led by Jefferies Head of Quantitative Strategy Desh Peramunetilleke addressed "AI unwinding risk" by making the case that the current bull market "still has legs," in part because of how it compares with the dot-com bubble that began to deflate in 2000.
"The profitless dot-com bubble saw a 266% rally in the S&P 500 vs only 85% so far despite strong AI earnings growth," the Jefferies team wrote. They backed that comment with a chart:
The analysts projected "another 9% upside for the S&P 500," backed by a forecast of double-digit earnings growth in 2026. Among their suggestions for stock selection were "GARP plays," with the acronym standing for growth at a reasonable price.
Screening for growth at a reasonable (or low) price
Let's set the stage by pointing out that the S&P 500 SPX has returned 85.6% from the end of 2022 through Friday. This gain followed an 18.1% decline for the index in 2022. If we stretch our time frame to five years, the large-cap U.S. benchmark has returned 125.3%.
Over those five years, the S&P 500's forward price-to-earnings ratio has averaged 20.1, according to LSEG. The index's forward P/E at the end of last week was 22.8, which compares with a 10-year average of 18.9. These are ratios of prices to rolling consensus 12-month earnings-per-share estimates among analysts polled by LSEG, weighted by market capitalization. So even with earnings growth among Big Tech companies driving the bull market, the S&P 500's P/E valuation seems to be high.
When discussing the GARP theme, the Jefferies team emphasized the importance of "earnings momentum." This refers to revisions in earnings-per-share estimates among analysts working for brokerage firms or research firms that supply information to the brokers.
So we screened the S&P 500 as follows:
-- Projected compound annual growth rates for revenue from 2025 through 2027 are at least twice the projected rate of 6.5% for the S&P 500. These are based on consensus estimates for calendar years, as adjusted by LSEG for companies whose fiscal reporting periods don't match the calendar.
-- P/E ratios are below that of the index.
-- The Consensus calendar 2026 earnings-per-share estimate has not declined from what it was three months ago.
We might have also screened for projected EPS CAGR, which is 13.9% for the index from 2025 through 2027. However, few enough stocks passed the screen that we excluded this criterion.
Seven companies failed the EPS momentum component of the screen
Thirteen companies passed the first two components of the screen. But for seven of these companies, consensus calendar 2026 EPS estimates were down from three months earlier.
Here are the seven companies that didn't pass the screen because their calendar 2026 EPS estimates had declined. They are sorted by projected sales CAGR through calendar 2027:
For this last table, we have included projected EPS CAGR. The EPS projections reflect analysts' expectations for changes in companies' diluted share counts that are used to calculate EPS. This can be especially important if the revenue growth projections reflect pending acquisitions.
Huntington Bancshares $(HBAN)$ of Columbus, Ohio, announced an agreement to acquire Cadence Bank of Tupelo, Miss., on Oct. 27. This will be an all-stock deal, which means Huntington's share count will increase. Expectations for the higher share count are incorporated in the latest consensus 2026 EPS estimate for Huntington, which is still up slightly from where it was three months ago.
The only company among the largest 10 in the S&P 500 by market cap to pass the screen was Meta Platforms Inc. (META), which analysts expect to grow sales at an annual pace of 16.3% over the next two years. Meta's EPS are expected to grow at an annual pace of 12.4% from 2025 through 2027, making it the only stock to pass the screen whose projected EPS CAGR trails the 13.9% projection for the full S&P 500.
