S&P 500: Analysts say 12 ‘dirty cheap’ stocks are due for a rally

The S&P 500 isn’t as cheap as it used to be — it’s up 3.6% this year, after all. But analysts are still spotting relatively cheaply priced stocks because of the rally.


Twelve stocks in the S&P 500, including dish network (COURT), modern (MRNA) and energy companies EQT (EQT), are cheap by current standards and have traded for less than 10 times adjusted earnings per share over the trailing 12 months, according to an analysis by Investor’s Business Daily using data from S&P Global Market Intelligence and MarketSmith. That’s surprisingly cheap considering the average stock in the S&P 500 is trading for more than double: 30 times earnings.

And yet, analysts think all 12 of these stocks will rise 25% or more over the next 12 months. If true, it would be a 2.5 times better return than the S&P 500 in a typical year.

The sell-off of the S&P 500 in February after a robust January reminded investors that this market is still facing a lot of turbulence, says DataTrek Research’s Nicholas Colas. Some cheaper stocks may finally be attracting attention as investors pull back the pricier investments they have already accumulated.

“The S&P 500 gained 6.2% in January,” Colas said. “While years with big January rallies almost always feature strong double-digit returns, they typically occur during bull markets or when the Fed cuts rates. Neither description fits the current market environment particularly well.”

S&P 500 ignores valuations for now

Smart investors know not to pay too much attention to PE ratios. And they ignore them for now.

So far this year, only six of the top 10 companies in the S&P 500 have any operations at all. Because four of the companies have posted losses in the past four quarters. And imagine this: Two-thirds of the 10 best-performing stocks of the year that are up this year are trading at higher valuations than the market. Take a manufacturer of computer graphics chips NVIDIA (NVDA) as an an example. Its stock is up nearly 60% this year, but it’s trading at nearly 134 times earnings.

But that doesn’t mean analysts can’t find some potential winners who haven’t yet adhered to such atmospheric valuations.

Find the next winners cheaply

Analysts make no secret of their favorite cheap stock on the S&P 500: Dish Network. They’ve got high hopes for the stock trading for just three times trailing-12-month adjusted earnings per share.

The stock is cheap, but analysts insist it shouldn’t be. They claim that shares of the satellite broadcaster should be trading at 28.40 each in 12 months. If they are right, that would mean an implied upside of almost 160%. That’s the most optimistic view analysts have for a stock with such a low valuation. So far this year it hasn’t worked out. Shares are down more than 21% to 10.98.

However, analysts are bullish, not based on growth. It’s more of a play with the stock being beaten down too much. In fact, the company’s earnings fell nearly 70% in 2023 before rising 71% in 2024. However, if you’re only paying triple earnings, you don’t need much growth, analysts say.

modern? A cheap S&P 500 stock?

Given Moderna’s huge opportunity to apply mRNA technology to many life-saving techniques, it’s surprising that it’s such a cheap stock. It’s trading at just 6.9 times trailing earnings because gains have been so massive during the Covid-19 vaccine boom.

And while Moderna’s stock is down 23% this year to 137.86, it’s important to note that it’s still one of the best-performing S&P 500 stocks since the outbreak of Covid-19. And analysts are optimistic. They are calling for Moderna to trade at $222.06 per share 12 months from now. If they’re right, that’s an increase of 61%.

But again, fundamentals are why the stock is cheap. Moderna is expected to post a loss of $2.24 per share in 2023 and another loss of $2.55 per share in 2024. The key to Moderna will be to develop another breakthrough treatment and accelerate its return to profitability faster than 2026, which analysts expect.

Will some of these companies give investors more than they pay?

Cheapest S&P 500 stocks with huge upside potential

Based on analysts’ 12-month price targets

Pursue ticker Implied top PE (12 months trailing) sector
dish network (COURT) 158.7% 3.0 communication services
modern (MRNA) 61.1 6.8 health care
EQT (EQT) 41.5 7.6 energy
Organon (OGN) 36.4 6.7 health care
signature bank (SBNY) 34.7 5.2 finance
Marathon Oil (MRO) 29.2 4.9 energy
General Motors (GM) 27.9 6.4 Consumer Discretionary
APA (APA) 27.6 3.6 energy
Devonian energy (dvn) 26.7 6.1 energy
Pioneer of natural resources (PXD) 25.7 6.7 energy
Pfizer (PFE) 25.5 7.4 health care
EOG resources (EOG) 25.5 9.1 energy
Sources: IBD, S&P Global Market Intelligence

Follow Matt Krantz on Twitter @dull wreath


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