8 red-hot stocks that are still dirt cheap
Investors have a dilemma: Pay nosebleed prices for top stocks or take your chances with cheap stocks and hope they go up. Look hard, though, and you can find stocks beating the market that are also cheap.
Eight stocks in the Standard & Poor's 500 index, including Goodyear Tire & Rubber (GT), oil refiner Valero Energy (VLO) and food processor Mondelez (MDLZ) have jumped 15% or more this year and are still dirt cheap compared with the market, according to a USA TODAY analysis of data from S&P Capital IQ. Each of these stocks is trading for less than 11 times their diluted earnings over the past 12 months. Compare that with the S&P 500, which is trading for an above-average 20 times earnings the past 12 months, according to S&P Dow Jones Indices.
Finding cheap stocks that are performing well is getting increasingly difficult. The year's champion stocks like Amazon (AMZN), Netflix (NFLX) and Alphabet (GOOGL) are up huge this year, 116%, 151% and 45%, all topping the Standard & Poor's 500's 1.3% gain. But they're very far from bargains. Amazon, for instance is trading for more than 900 times trailing earnings, Netflix has a P-E of more than 300 and Alphabet trades for 35 times earnings.
Giant winners by giant stocks have helped push the valuation on the S&P 500 to 20 times companies' earnings over the past 12 months, according to data from S&P Dow Jones Indices. That means the market is trading above it's average P-E of 18.8 since 1988.
But there are still big winners that aren't trading at these elevated market multiples. Take tire maker Goodyear Tire & Rubber. The company's shares are up nearly 20% this year to trade Tuesday at $34.14 a share. Adjusted profit from the company has exceeded expectations the past five straight quarters, which is fueling investors' enthusiasm. Profit next year is seen jumping another 19%. But despite this strong growth, Goodyear is trading for just 3.3 times its diluted earnings over the past 12 months. Analysts, not surprising, rate the stock "outperform."
The oil patch is starting to yield some stocks rising from the oil crash implosion that aren't expensive yet. Valero Energy shares are up an impressive 47% this year to $72.81, greatly rewarding investors who took a chance at the start of the year when oil profits were looking most bleak. Unlike many energy companies that are seeing their profits crater, Valero is expected to post 28% higher adjusted profit per share of $8.56 this year. Even so, the stock is trading for just 7.6 times its trailing earnings. This is a stock that's so cheap, the P-E is less than the company's long-term expected growth rate.
Shares of Mondelez, maker of cookies and crackers like Oreo and Chips Ahoy!, have jumped 21.1% this year to $43.98. But despite that gain, the shares are trading for just 8.6 trailing earnings the past 12 months. That's cheap not just compared with the market's valuation, but is reasonable if you consider analysts expect the company to put up 15% growth in adjusted profit this year and grow by 9% a year on average over the long term.
Stocks might be more expensive -- and downright prohibitively priced in the case of many of the year's winners. But that doesn't mean there aren't stock-market champions that can still be scooped up on the cheap.
MARKET-BEATING S&P 500 STOCKS THAT ARE STILL CHEAP *
Company, Symbol, P/E, YTD % Ch.
Goodyear Tire & Rubber, GT, 3.3%, 19.5%
Valero Energy, VLO, 7.6%, 47.1%
Mondelez, MDLZ, 8.6%, 21.1%
Marathon Petroleum, MPC, 8.9%, 25.9%
Tesoro, TSO, 8.9%, 57.6%
First Solar, FSLR, 9.7%, 24%
LyondellBasell, LYB, 10.1, 20.6%
Phillips 66, PSX, 10.8, 28.6%
Sources: S&P Capital IQ, USA TODAY
* Stocks up 15% or more this year with diluted trailing P-Es of 10 or lower
Follow Matt Krantz on Twitter @mattkrantz