6 Low P/E Stocks That Investors Must Not Overlook

  • These six stocks are so cheap investors must now overlook them. They all have P/Es well below 10x with good earnings growth forecast going forward.
  • United States Steel Corp (X) - this is probably the cheapest large-cap stock out there at a 2.2 times P/E multiple with a small dividend yield of 0.8%.
  • Meritage Home Corp (MTH) - This high-end home builder trades on a forward multiple of just 3 times and does not pay a dividend. But if the recession and interest rate hikes do not turn out as bad as the market fears now, this stock is a huge bargain.
  • Goodyear Tire & Rubber (GT) - With EV production picking up steam, earnings are forecast to rise 54% this year, and the stock trades on a 5x forward multiple.
  • Arrow Electronics (ARW) - This electronics distributor trades for just 5x forward earnings but the company should do well as the chip shortage eases.
  • Sanmina Corp (SANM) - This PCB manufacturing co. trades for just 9.1x earnings, with good earnings.
  • United Microelectronics (UMC) - This Taiwanese semiconductor wafer semiconductor manufacturer trades for 9.6x earnings and a 3.29% dividend yield - getting paid to wait for the value to rise to the surface.
Low P/E stocks - 6 Low P/E Stocks That Investors Must Not Overlook

Source: ImageFlow/Shutterstock.com

We have chosen six stocks that have price-to-earnings (P/E) significantly lower than 1ox that investors must not overlook now. The reason is that low P/E stocks, especially those at extremes, often tend to have a rebound in the stock price.

One metric that we looked for in this list is those that have low forward P/E multiples that are significantly lower than their 5-year historical average. These stocks tend to rebound to their mean P/E multiple.

Often cyclical stocks can have very low P/E ratios. That is because the market discounts cyclical stocks like steel companies and home builders right away, even before a recession hits. Growth stocks tend to get hit later as investors are less willing to admit that growth is faltering.

Non-cyclical low P/E stocks often have some temporary problem that makes them good investments over the long term. Or they could simply be in a hated industry like tobacco or gaming (somehow liquor stocks, in the “sin” category get overlooked for low P/Es).

Let’s dive in and look at these stocks.

X United States Steel Corp $25.76
MTH Meritage Home Corp $83.10
GT The Goodyear Tire and Rubber Co. $13.56
ARW Arrow Electronics $124.35
SANM Sanmina Corp $45.15
UMC United Microelectronics $8.97

Low P/E Stocks: U.S. Steel Corp (X)

AI. Circuit board. Technology background. Central Computer Processors CPU concept. Motherboard digital chip. Tech science background. Integrated communication processor. 3D illustration representing semiconductor stocks
Source: Shutterstock

Market Cap: $6.5 billion

United States Steel Corp (NYSE:X) is a steel producer that trades at 78% of its tangible book value, pays a 0.8% dividend, and trades for two times forward earnings.

For example, U.S. Steel has a stated book value of $9.698 billion, and after deducting $1.42 billion in intangible assets, its tangible book value (TBV)is $8.278 billion. But its stock market value is lower than this at $6.5 billion. So that means its price-to-TBV per share is 78.5%. That is what value investors love.

Moreover, the stock trades on a forward P/E of 2x for this year and 6 times for next year (i.e., assuming a slowdown in sales and earnings). That is still very cheap. The valuation reflects a lot of bad news.

The bottom line is if the coming recession, already “in” the stock price, turns out to not be as bad as forecast, this stock could move dramatically higher. If not, the valuation already reflects a ton of bad news. Let’s face it – the stock is selling below TBV and still pays a 0.8% dividend yield.

Meritage Home Corp (MTH)

Close up of industrial bricklayer installing bricks on construction site
Source: bogdanhoda / Shutterstock.com

Market Cap: $3.05 billion

Meritage Home Corp (NYSE:MTH) builds high-end quality homes in the south and west of the U.S. As you might suspect, the stock reflects a good deal of bad news, assuming that a “superbad” recession, as Elon Musk fears, is on the horizon. For example, right now MTH stock trades on a forward P/E multiple of 3.08 times 2022 earnings and 3.28x 2023 forecast EPS.

That reflects a deep recession going forward. This is nowhere near where the stock normally trades, from a valuation standpoint. For example, Morningstar indicates that its average forward P/E in the last 5 years, is 8.7x, over 150% higher its valuation today.

In essence, this is a long-term play for value investors. You may even have to average down, assuming the stock takes a temporary hit. But statistically, it’s very cheap. For most value investors that is enough.

Goodyear Tire & Rubber (GT)

Sign for Goodyear (GT) tire shop. The Goodyear Tire & Rubber Company is an American tire manufacturing company.
Source: Roman Tiraspolsky / Shutterstock.com

Market Cap: $3.8 billion

The Goodyear Tire and Rubber Co. (NASDAQ:GT) is forecast to produce 54% higher earnings next year to $2.76 from $1.79 in 2022. That puts GT stock on a forward multiple of earnings of just 5x. That is super cheap for this huge tire company.

For example, its average P/E multiple in the last 5 years was 8.58x. That is 72% higher than today’s price. Even if it rose half of that amount the stock would be up 36% in less than a year.

This is very rare to find a stock so cheap with such a higher earnings growth rate. It’s probably a combination of higher car prices, higher input prices, and growing EV production going forward.

Arrow Electronics (ARW)

ARW stock: a close up of electronic components
Source: Gorodenkoff / Shutterstock

Market Cap: $8.2 billion

Arrow Electronics (NYSE:ARW) is an undervalued electronics distributor and software provider. It’s super cheap at just 5.5 times earnings for 2022 and 6.1x for 2023.

Despite a rough Q1, the company was still FCF positive for the last 12 months. Going forward, the company said it expects to make EPS of between $5.48 and $5.64 for Q2. At the midpoint $5.56, this works out to $22.24 EPS on a full year basis, or a steady earnings rate.

In other words, if the recession does not come in as bad as analysts are forecasting, the stock is probably way too cheap here. Either way, it already discounts most of the bad news already. That makes it a good play at these levels for the long term.

Sanmina Corp (SANM)

A graphic of a person's hands resting on a laptop with a stock line graph moving through it
Source: Shutterstock

Market Cap: $2.72 billion

Sanmina Corp (NASDAQ:SANM) is a PCB (printed circuit board) manufacturing co. trades for just 9.1x earnings, with 8.8% earnings growth for 2023 over 2022. Moreover, analysts also forecast incremental sales gains in 2023.

That is a lot better than their forecasts for many tech stocks, where a recession is set to lower revenue at many companies. It’s also lower than the company’s last 5 year average of 10.3x earnings.

As a result, SAMN stock trades for just 35% of sales. This is much lower than many other tech stock that trade at multiples of sales. This makes it a favorite of value investors.

Low P/E Stocks: United Microelectronics (UMC)

Semiconductors chips and blurred UMC United Microelectronics Corporation logo.
Source: Ascannio via shutterstock

Market Cap: $21.5 billion

United Microelectronics (NYSE:UMC) is a Taiwanese  wafer semiconductor manufacturer that trades for 9.6x forward earnings (2023) and has a 3.23% dividend yield.

Moreover, earnings are forecast to fall, but if the chip shortage does not ease by 2023, investors can expect that earnings will stay steady. That will lower its ongoing price-to-earnings multiple, making it cheap for investors on a forward basis.

So far, the stock does not deserve to be so weak, based on its year-over-year (YOY) sales growth. For example, as of April, sales were up 39% YoY. May sales should be out any day now, and are likely to show another high YoY gain.

In other words, the bottom line here is that the stock reflects a good deal of weaknesses that has yet to show up in the company’s underlying sales performance.

On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com, Newsbreak.com and Beehiiv.com.


Article printed from InvestorPlace Media, https://investorplace.com/2022/06/6-low-p-e-stocks-that-investors-must-not-overlook/.

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