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The 10 cheapest stocks in the s&p 500 index

Almost all of these companies have strong balance sheets, which can mitigate downside risks.

In turbulent markets, super cheap stocks can provide investors with a good margin of safety.

One simple way to find them is to screen for stocks with the lowest pe ratio. Barron's Magazine used FactSet data to screen for the 10 companies with the lowest expected pe ratio in the S&P 500 index for 2022.

The PE ratios of these 10 stocks are all 5 times or lower, while the PE ratio of the S&P 500 index is around 17 times.

These companies include Nucor Corporation (NUE) in the steel industry, D.R. Horton Inc. (DHI) and Lennar Corporation (LEN) in the construction industry, General Motors Company (GM) in the auto industry, Moderna Inc. (MRNA) in the biotechnology industry, Mosaic Company (MOS) and CF Industries Holdings (CF) in the fertilizer industry. Additionally, there are Viatris (VTRS), PulteGroup Inc. (PHM) and the former Apache Corporation (APA).$Nucor (NUE.US)$$D.R. Horton (DHI.US)$$General Motors (GM.US)$$Moderna (MRNA.US)$$Viatris (VTRS.US)$$PulteGroup (PHM.US)$

These stocks have two common points. Firstly, investors do not believe that the current earnings growth will continue into 2023 and 2024. Secondly, almost all these companies have strong balance sheets, which can mitigate downside risks.

Cheap Stocks

Here are the 10 stocks with the lowest PE ratios in the S&P 500 index

Source: FactSet

Homebuilders account for 3 out of the 10 stocks. The industry suffered in 2022, with Horton and Lennar stocks falling by 35% or more. Concerns are rising that the strong state of the real estate market will continue to worsen until 2023, as this year's mortgage rates have risen by two percentage points to over 5%, coupled with significant house price increases over the past two years.

Stephen Kim, a real estate bull from Evercore ISI, recently wrote: "The situation is particularly interesting because the valuations of homebuilding stocks seem to suggest that the demise of the industry is inevitable."

Horton, Lenar, and Pulte have a PE ratio of around 4 times, with Lenar's stock price around $75, only slightly higher than book value. Lenar's Class B shares (LEN/B) with super voting rights are even cheaper, at $63. The industry balance sheets have never been better, with companies like Pulte buying back a large amount of stocks.

Moderna's stock price is currently around $137, down 70% from last year's peak of nearly $500, only five times the expected EPS of around $28 for 2022.

Investors are concerned that Moderna's new crown vaccine sales, which account for almost all of its revenue, will sharply decline in 2023, bringing its EPS down to $9. However, vaccine sales may be more lasting than analysts fear, as the company is developing a large number of new drugs. With Moderna sitting on $19 billion in cash, around $47 per share, its downside may be limited.

Barron's recently highly praised General Motors, believing that the current stock price of around $36 provides investors with a cheap opportunity to invest in its ambitious electric vehicle plans. General Motors' PE ratio based on expected earnings for 2022 is only 5 times.

Nucor is the largest steel producer in North America, and its stock price has risen in the past 18 months due to the surge in steel prices. Investors are concerned that the current steel price of around $1200 per ton will fall below $1000 later this year, and Nucor's stock price also reflects this concern. Oil prices are currently around $125, lower than the recent high of $188.

Swiss Credit analyst Curt Woodworth rates Nucor as 'outperforming the market' with a target price of $165, but he is not interested in the high-priced deal to acquire garage door manufacturer CHI Overhead Doors. He wrote that Nucor's cheap stocks are more valuable than the $3 billion CHI deal.

Fertilizer stocks are boosted by strong pricing, but investors are concerned that strong pricing may not be sustainable. Therefore, Mosaic and CF Industries have a PE ratio of 4 to 5 times based on expected earnings for 2022. JP Morgan analyst Jeff Zekauskas referred to Mosaic as 'one of the cheapest agricultural companies.'

He has a target price of $80 for Mosaic, while the stock's recent price is $61. The company is benefiting from high potash prices, in part due to limited supply from Russia and Belarus.

APA produces oil (about half of its production) and natural gas in the United States and internationally, including in countries such as Egypt. Like many companies in the industry, APA has been increasing shareholder return on capital, although it tends to prefer share buybacks over dividends. Its dividend yield is only 1%.

J.P. Morgan analyst Arun Jayaram is bullish on APA, citing a free cash flow yield of around 20% and giving a target price of $56, while the recent stock price is $43.

Generic drug manufacturer Viatris has had consistently low stock prices, but this has not translated into strong investor returns due to the challenging industry conditions. It also carries a considerable amount of debt. The company was formed from the merger of Mylan and Pfizer's Upjohn division in 2020.

By Andrew Bary, a contributor to Barron's Magazine.

Edited by Wu Yuting

Original article from Barron's Magazine (barronschina), unauthorized reproduction is prohibited. The English version can be found in the report dated May 24, 2022, 'The 10 Cheapest S&P 500 Stocks Include 3 Home Builders.'

(This article is for reference only and does not constitute investment, accounting, legal, or tax advice.)

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