The major U.S. indices are now trading within a few percentage points from all-time highs — all of which were set within the past six months, causing many of the markets talking heads to once again claim that the “easy money” has been made and that finding value is nearly impossible to come by.
Adding fuel to that fire is the S&P 500, which is trading at a price-to-earnings ratio of 21, well above its median of just 14.6.
But despite the market as a whole trading at an above-average P/E ratio and looking overvalued, there are still a number of individual stocks investors can buy today which are very cheap based on a few different metrics.
When looking for cheap stocks, I will typically start by searching for stocks with a price-to-earnings-growth ratio below 0.5, but I will go as high as 1.0. I look for companies with a low price-to-earnings ratio, strong earnings growth histories, good earnings per share growth prospects and healthy sales growth over the past few years.
Without further ado, let’s take a look at three cheap stocks to buy today.
Cheap Stocks to Buy: Voya Financial (VOYA)
Serving 13 million customers and handling $486 billion in assets, Voya Financial (VOYA) is no slouch. But it has been getting passed over by investors.
Based on its PEG of just 0.4, Voya is the cheapest of our cheap stocks to buy and also carries a trailing P/E ratio of just 5.3. Earnings per share have risen 12% over the past five years and nearly tripled between full-year 2013 and full-year 2014. EPS are also expected to climb by nearly 8% next year and more than 13% over the next five years.
With numbers like those, it’s hard to see how investors wouldn’t make money with Voya. The PEG and P/E ratios are so low that the stock will essentially be forced to move higher if future earnings come in as expected. Furthermore, Voya is currently just a $10.5 billion company, which is rather small given that it is a nation-wide financial institution.
With its low market capitalization and strong growth prospects, Voya could also be a possible buyout candidate in the future — just another way an investor buying into the stock today could see a big return.
Cheap Stocks to Buy: Apple Inc. (AAPL)
Based on PEG, Apple Inc. (AAPL) is the most expensive of our cheap stocks to buy, coming in at a 0.91. But for most investors, the larger hurdle to get over when considering whether or not AAPL is worth buying is the company’s market cap — currently around $700 billion.
Investors seem to think that, at some point, AAPL just can’t get any larger — but that’s far from true. Investors should look at AAPL and consider whether it is a stock to buy based on actual growth, not the company’s size.
As for growth, AAPL is expected to increase earnings per share by 15% over the next five years, including EPS growth of 40% this year. The projected five-year average growth is “only” 23%, though. As for the P/E ratio, AAPL is a steal at 14 times trailing earnings (a mere two-thirds of the S&P 500 right now) and just 12 times forward earnings.
Also impressive for AAPL is its sales figure, averaging 30% annual growth over the past five years. While revenues have slowed over the past couple of years, sales growth remains robust for a company that’s nearing the $200 billion annual revenues mark, and that had only recently doubled its revenue (and then some) in just two years.
Apple’s ability to keep growing sales means more customers are coming into Apple’s already large ecosystem, which means it’s building more (hopefully loyal) customers over the long run. Apple makes great devices, but the business’s real genius is how it makes a customer’s switching costs so high that it basically locks a user in for life.
Cheap Stocks to Buy: Tyson Foods (TSN)
Lastly, Tyson Foods (TSN) is certainly one of the better stocks to buy if you are looking for cheap and reliable picks. The meat producer isn’t the cheapest of the three stocks, but it in my opinion the most stable.
Tyson sells a product that is pretty essential for most life: protein-heavy food. Because TSN’s product is so essential, it’s unlikely that sales will just fall off a cliff or earnings will take a massive retreat from one quarter to the next. Of course, chicken or cow diseases can affect business, but TSN is generally very consistent with its sales and earnings figures.
When we get down to those actual figures, TSN currently trades at a PEG ratio of just 0.67, a P/E of 17 and a forward P/E of 12. Earnings per share have grown an average of 29.3% for the past five years.
Even more interesting is that TSN only grew sales by 7.1% over the last five years but posted EPS growth that quadrupled that figure, meaning TSN has become a much more profitable company over the past few years. Next year, EPS are expected to grow by 8.7% leading into an expected 19% annually for the next five years.
As of this writing, Matt Thalman was long AAPL. Follow him on Twitter at @mthalman5513.
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