When discussing value investing, one of the most popular ratios used for identifying stocks to invest in is the trailing P/E (Price-to-earnings) ratio. The trailing twelve months P/E ratio is calculated by dividing the current stock price by the sum of 4 latest quarterly earnings per-share of the underlying company. But why is the P/E ratio important for a value investor, you may ask? That’s because the stocks with a lower P/E ratio could be undervalued and might do better in the future. For an example, a P/E ratio of 5 shows, that the stock trades at 5 times its earnings per share, while for a stock with a P/E of 10, this multiplier is 10. There is no universal definition of a good P/E ratio as it varies across sectors and business models, but generally, a P/E ratio lower than 20-25 is already considered good. All in all, a better than average P/E shows, that a company is making more per its share price than other companies.
Therefore, we have chosen 10 stocks from the legendary S&P 500 list that are available on the Fundvest app, based on the lowest (but not negative) trailing twelve months P/E ratios for you! The data is based on 22 May 2023.
- Dish Network Corp Class A (DISH – NASDAQ): The telecom services corporation had a very low P/E ratio of only 2.09 at market close of 22 May.
- EQT Corp (EQT – New York Stock Exchange): This oil and gas company showed a P/E ratio of 3.14. This can also be considered really low.
- Apa Corp (APA – NASDAQ): Another oil and gas firm on the list showed a P/E similar to the previous: 3.38.
- Comercia Inc (CMA – New York Stock Exchange): This Dallas based bank boasts a trailing P/E ratio of 3.44. Although, it is important to note that the banking stocks are at the time of writing going through turbulent times because of the scares caused by the interest risk.
- Philips 66 (PSX – New York Stock Exchange): The energy manufacturing and logistics company has a P/E ratio of 3.56.
- Principal Financial Group Inc (PFG – NASDAQ): The asset management and insurance group has a P/E ratio is a strong 3.99.
- American International Group (AIG – New York Stock Exchange): Yet another financial group in the list. This one has a trailing P/E ratio of 4.02.
- Mosaic (MOS – New York Stock Exchange): The crop nutrient manufacturer that is one of the two non-energy and non-financial companies on the list, shows a P/E ratio of 4.38.
Even though all the companies in the above list are a part of the S&P 500 index, they surely are not the best-known. Therefore, we present to you two honourable mentions, i.e., really big names that also have a low trailing P/E ratio.
- General Motors (GM): The automotive industry giant has had a nice and low P/E ratio for some years now. At the moment, the ratio for the stock is 5.64.
- Verizon (VZ): This telecommunication company has a P/E ratio of 7.38, which is good compared to other companies in the same industry. The firm also has a nice dividend yield of 7.19% from the current share price.
Despite the P/E ratio being an understandable financial metric, it is important to note that it is not the only financial indicator that you should take into consideration while making investment decisions. Even though a low trailing P/E could hint to undervalued stocks, this ratio could also be low because of negative future outlook (e.g., risk of bankruptcy or negative growth) for the underlying company. The P/E should be used to compare similar companies (by industry for instance), because the already mentioned future outlook may differ a lot.
Please be advised that the list presented is informative and not intended to be an investment advice suggesting specific stocks, but merely a presentation of facts. All Fundvest clients are encouraged to do their own research and make sure of their risk tolerance and financial capacity before making investment decisions. Please consult an expert, if necessary.
For writing this article, Fundvest has used historical data from the third-party providers, therefore Fundvest neither takes any responsibility for the data presented, nor intends to update the information presented in this article.
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