Stock Valuations Lower Than Any Peak in 23 Years
Even though the market has rallied 24.6% since the lowest point in October of last year, valuations "are lower than at every 52-week peak since 1989" according to Bloomberg's Whitney Kisling. With profits growing over 100% since March of 2009, the index's average price-to-earnings has dropped to 14.1.
Some investors believe that the low valuation provides a margin of safety, though the market volatility still scares investors away. Paul Zemsky, the head of asset allocation for ING Investment Management, said in an interview with Bloomberg, "Stocks have just gotten too cheap. We were worrying about a Chinese hard landing that didn't happen. We worried about a U.S. double dip and that didn't happen. We worried about Europe disintegrating, that didn't happen. The worst risks have passed."
Others believe that the increase in oil prices and the continuing European uncertainty have encouraged options traders to hedge their bets in case of another market panic. Those factors, combined with the speed at which the market has rallied, have given many money managers reason to protect their investments. They would rather be safe than sorry.
Business section: Investing ideas
Looking for opportunities to take advantage of the low valuations? We started this screen with stocks listed in the S&P 500 index, and then looked for those with a PEG lower than 1. Finally, we ran DuPont analysis on the companies to find those with encouraging profitability trends. Do you think these stocks are poised to move higher?
List sorted by market cap. (Click here to access free, interactive tools to analyze these ideas.)
1. Apple (NAS: AAPL) : Designs, manufactures, and markets personal computers, mobile communication and media devices, and portable digital music players, as well as sells related software, services, peripherals, networking solutions, and third-party digital content and applications worldwide. Market cap at $497.10B. PEG at 0.81. MRQ net profit margin at 28.2% vs. 22.45% y/y. MRQ sales/assets at 0.334 vs. 0.308 y/y. MRQ assets/equity at 1.54 vs. 1.587 y/y.
2. EOG Resources (NYS: EOG) : Engages in the exploration, development, production, and marketing of natural gas and crude oil primarily in the United States, Canada, the Republic of Trinidad, Tobago, the United Kingdom, and the People's Republic of China. Market cap at $30.46B. PEG at 0.56. MRQ net profit margin at 4.35% vs. 3.% y/y. MRQ sales/assets at 0.112 vs. 0.083 y/y. MRQ assets/equity at 1.965 vs. 2.113 y/y.
3. Cummins (NYS: CMI) : Designs, manufactures, distributes, and services diesel and natural gas engines, electric power generation systems, and engine-related component products worldwide. Market cap at $23.09B. PEG at 0.75. MRQ net profit margin at 11.14% vs. 8.75% y/y. MRQ sales/assets at 0.422 vs. 0.398 y/y. MRQ assets/equity at 2.125 vs. 2.227 y/y.
4. CF Industries Holdings (NYS: CF) : Manufactures and distributes nitrogen and phosphate fertilizer products, serving agricultural and industrial customers worldwide. Market cap at $11.65B. PEG at 0.53. MRQ net profit margin at 25.54% vs. 16.18% y/y. MRQ sales/assets at 0.191 vs. 0.141 y/y. MRQ assets/equity at 1.974 vs. 2.161 y/y.
5. Staples: Operates as an office products company. Market cap at $10.45B. PEG at 0.95. MRQ net profit margin at 4.97% vs. 4.42% y/y. MRQ sales/assets at 0.483 vs. 0.471 y/y. MRQ assets/equity at 1.898 vs. 2.049 y/y.
6. CONSOL Energy (NYS: CNX) : Engages in the production of multi-fuel energy and provision of energy services primarily to the electric power generation industry in the United States. Market cap at $7.57B. PEG at 0.60. MRQ net profit margin at 12.69% vs. 7.7% y/y. MRQ sales/assets at 0.123 vs. 0.112 y/y. MRQ assets/equity at 3.469 vs. 4.099 y/y.
7. Flowserve: Develops, manufactures, and sells precision engineered flow control equipment. Market cap at $6.35B. PEG at 0.76. MRQ net profit margin at 9.89% vs. 9.87% y/y. MRQ sales/assets at 0.274 vs. 0.256 y/y. MRQ assets/equity at 2.037 vs. 2.121 y/y.
8. Snap-on: Manufactures and markets tools, diagnostics, equipment, software, and service solutions for professional users in the United States, the United Kingdom, Canada, Germany, Japan, France, Australia, Spain, the Netherlands, Italy, China, and Sweden. Market cap at $3.52B. PEG at 0.99. MRQ net profit margin at 10.09% vs. 8.31% y/y. MRQ sales/assets at 0.201 vs. 0.187 y/y. MRQ assets/equity at 2.399 vs. 2.686 y/y.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Daniel Guttridge does not own any of the shares mentioned above.
At the time this article was published The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Staples, Apple, and Cummins. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.