Even after the market's recent correction, stocks are more expensive today than historic norms. What does "expensive" mean in this context?
So-called value investors like to compare the cost of a stock to how much money the company is actually making. By using metrics called price ratios, they can get a simple figure for how much they have to pay to get one dollar of profits — price-to-earnings (P/E) ratio, or revenue — price-to-sales (P/S) ratio. Value investors expect the market to eventually shine on those companies that are undervalued based on their financials.
Are they right? Sometimes yes and sometimes no. Plenty of "expensive" stocks have been great investments over the years (Facebook or Amazon are recent examples) and others, known as "value traps," are cheap because they're bad companies on the decline. Ultimately, price ratios are still just one piece of a comprehensive process for judging companies. Still, focusing on affordable stocks is a tried and true method that has the endorsement of successful investors like Warren Buffett.
Click through and see which 15 well-known companies have relatively low P/E and P/S ratios, and which might make a good stock investment.
CVS Health Corporation (CVS)
Price per Share: 70.49
P/E Ratio: 14.53
P/S Ratio: 0.39
Pharmacy services provider and drugstore chain CVS made a big splash late in 2017 when it announced its plan to acquire health insurance giant Aetna for $69 billion in a move that could have major repercussions across the healthcare sector. Investors are currently getting more than $2 of revenue for every dollar invested, making the company look like a cheap buy in the present, and that could pay off long term if the company's ambitious plans work out.
CVS is a good buy for shoppers, too — see what are the best deals at your neighborhood CVS.
Prudential Financial, Inc. (PRU)
Price per Share: 109.73
P/E Ratio: 6.14
P/S Ratio: 0.86
Prudential, a provider of insurance and investment services, is a relative steal with its P/E ratio. Financial companies typically offer lower price ratios than other sectors. The company also offers a healthy dividend of $3.60 a share, good for a 3.28 percent yield, making it a potentially attractive income stock as well.
Related: 10 Best Dividend Stocks of All Time
Ford Motor Company (F)
Price per Share: 10.76
P/E Ratio: 5.66
P/S Ratio: 0.27
If you think car makers are a good investment but you cringe at paying a premium for a stock like Tesla, Ford might provide a very affordable alternative. Tesla might be the sexier car stock to invest in right now, but rolling the dice on Elon Musk's grand vision will cost you. Its P/S of 4.8 is more than 15 times higher than Ford's reasonable 0.27.
Express Scripts Holding Company (ESRX)
Price per Share: 74.07
P/E Ratio: 12.16
P/S Ratio: 0.42
Express Scripts is a pharmacy benefit management company offering a wide variety of services associated with providing prescription drugs to patients. The company made news in late 2017 with the announcement that it was selling its United BioSource division to Avista Capital Partners for an undisclosed sum. Earlier that same month, it received a perfect score as a "best place to work" for LGBTQ individuals from the Human Rights Campaign Foundation.
Delta Air Lines, Inc. (DAL)
Price per Share: 52.95
P/E Ratio: 10.70
P/S Ratio: 0.91
Airlines have seen profits boosted in recent years by low fuel prices, typically a major anchor around the necks of their profitability. Delta also recently announced that it would be requiring passengers flying with emotional support animals to provide documentation. Probably hoping to avoid its own "flap" like the story of a United passenger that recently tried to fly with a peacock.
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HP Inc. (HPQ)
Price per Share: 21.45
P/E Ratio: 14.49
P/S Ratio: 0.68
The company HP Inc. was created as part of the spinoff in 2015 that divided Hewlett Packard between its PC and printing business and its data centers and software divisions under the name Hewlett Packard Enterprises. In the last year, HP Inc. has proven to have more juice than its former partner. HP Inc. was the largest shipper of PCs in the world in 2017. Not bad for a billion-dollar company that was started in a garage.
The Allstate Corporation (ALL)
Price per Share: 94.52
P/E Ratio: 11.31
P/S Ratio: 0.87
Insurer Allstate likely made its investors happy this February when it announced that it was boosting its quarterly dividend by 24 percent to 46 cents a share, a benefit of the half-billion dollars in profit freed up by the recent cut to the corporate tax rate. It's also planning on investing more into marketing efforts as well as bonuses for employees and contributions to retirement accounts.
McKesson Corporation (MCK)
Price per Share: 148.70
P/E Ratio: 6.54
P/S Ratio: 0.15
McKesson is primarily engaged in the distribution of generic pharmaceutical drugs, but it also has a technology segment that provides business solutions to a variety of specialty practices. The stock has an extremely attractive price, with more than $7 in revenue for every dollar of share price, but it's also recently been a target of legal action by several states claiming that it failed to react to suspicious volumes of painkiller shipments in the wake of the opioid crisis.
American Airlines Group Inc. (AAL)
Price per Share: 51.67
P/E Ratio: 13.25
P/S Ratio: 0.58
American Airlines made waves last year when it announced plans to raise wages for pilots and flight attendants by $1 billion over three years despite the fact the employees had two years left on their current contracts. It could be a part of a push to change company culture after a rash of bad press.
United Continental Holdings, Inc. (UAL)
Price per Share: 66.74
P/E Ratio: 9.51
P/S Ratio: 0.52
The mega-airline formed by the 2010 merger of United Airlines and Continental Airlines is the third major carrier to make this list, indicating that much of the industry could be offering relatively cheap earnings to investors. It was also recently identified as the airline with the highest portion of its flights arriving on time by the U.S. Department of Transportation. It hasn't avoided recent scandal, however. United's stock dropped in 2017 after it forcibly removed a passenger from an overbooked flight.
Newell Brands Inc. (NWL)
Price per Share: 27.64
P/E Ratio: 10.70
P/S Ratio: 0.90
Newell Brands is a consumer goods company that's responsible for some of the more ubiquitous office supply brands, including Sharpie, Paper Mate, and Elmer's. The company has seen some drama surrounding its leadership in recent weeks as activist investors have pushed to change the makeup of the board of directors.
Lear Corporation (LEA)
Price per Share: 191.86
P/E Ratio: 10.32
P/S Ratio: 0.63
Lear Corporation is in the business of automobile seating, engineering and manufacturing everything from seat trim covers to reclining mechanisms. The company recently announced earnings from the end of last year that handily beat Wall Street expectations.
The Gap, Inc. (GPS)
Price per Share: 33.33
P/E Ratio: 15.38
P/S Ratio: 0.84
Iconic early-90s apparel company The Gap is still chugging along, with revenue and profit figures that have remained relatively stable in recent years. The company recently tapped rap producer Metro Boomin in a new ad campaign aimed at recapturing the youth market. Gap also offers one of the best store credit cards.
Icahn Enterprises L.P. (IEP)
Price per Share: 56.71
P/E Ratio: 4.63
P/S Ratio: 0.51
Icahn Enterprises is the conglomerate that represents the holdings of "Icahn-ic" activist investor Carl Icahn, who owns over 90 percent of the company. Icahn recently made news when he told CNBC that he thought bitcoin and other cryptocurrencies are "ridiculous" and that he "wouldn't touch that stuff."
Think like Icahn and apply the personality trait that has made him a billionaire.
Macy’s, Inc. (M)
Price per Share: 26.46
P/E Ratio: 11.62
P/S Ratio: 0.33
Legendary retailer Macy's is a mere 12 years from celebrating the bicentennial of its founding and six years from celebrating the 100th anniversary of its famous Thanksgiving Day Parade (originally known as the Christmas Parade) in New York City.
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This article is produced for informational purposes only and is not a recommendation to buy or sell any securities. Investing comes with risk to loss of principal. Please always conduct your own research and consider your investment decisions carefully.
All prices and price-ratios are accurate as of market close on Feb. 15, 2018. Data from Yahoo Finance, using P/E and P/S ratios trailing 12 months.
Some images are representational of companies discussed.