Here Are The Cheapest Stocks In Each Sector Of The S&P 500
Dec 22, 2021
A rocky month has not deterred the S&P 500 from trading at the high end of its historical valuations.
Even though the S&P 500 trades at much higher valuations than Wall Street analysts expected, technology and consumer sectors sell for considerably higher multiples. Other sectors, such as energy or finance, have substantially lower values.
However, there are low-cost equities in all 11 S&P 500 sectors. It might be the same as a basketball player who is always open since many discounts might be for a valid reason. Just as rival teams may be better off focusing their defense elsewhere on the court, certain firms' stocks may be inexpensive for a reason. Their expansion may be limited, or one-time variables may be influencing predicted 2022 outcomes.
Examining the market on a regular basis for the most significant differences in valuations can be a solid start for further analysis. The following equities are among the cheapest in all 11 sectors of the S&P 500:
The S&P 500 consumer goods and services segment is the most expensive in the index, fetching more than 33 times estimated 2022 profits. It can be primarily attributed to Tesla (TSLA) and Amazon (AMZN) occupying high multiple positions. These two stocks account for 40% of the segment's capitalization and are priced at 121 times and 68 times 2022 projected earnings, correspondingly.
Three U.S. housing construction companies are at the opposite side of the valuation range in the segment: PulteGroup (PHM), D.R. Horton (DHI), and Lennar (LEN). These are trading for less than 8 times the projected income in 2022.
The residential market in the United States has been booming during the coronavirus times, with prices at or around historic highs in some regions, a scarcity of available houses for sale, and developers' earnings soaring. Investors, on the other hand, do not think that this will continue indefinitely. The low values of PulteGroup, D.R. Horton, and Lennar show what happens to equities of firms with cyclical end markets: Multiples shrink towards the height of the cycle as investors fear that the present level of profits will not be stable.
The present housing boom may have repercussions as the millennials enter their home-buying ages, and there has been a scarcity of residences constructed since the economic crisis a decade ago. Low prices of homebuilder stocks provide an intriguing entry point.
Shares of the technology sector as a whole are trading at 28 times next year's expected earnings, whereas Western Digital (WDC) is trading at only 6.8 times. Once more, cyclicality is at the root of this discount.
As a memory chip maker, Western Digital works in an extremely cyclical industry, with periods of heightened demand and sales often followed by periods of overstocking and price declines. During the pandemic, a surge in demand for P.C.s, phones, and cloud platforms has maintained inventories low and prices high for Western Digital's goods. However, investors understand this will not last forever.
APA (APA), Coterra Energy (CTRA), and Diamondback Energy (FANG) are the three least expensive companies in the S&P 500's lowest-priced segment, energy. The industry in total trades for little more than 11 times next year's expected profits, while its three lowest-priced stocks — all U.S. shale oil or gas companies — sell for 5 to 7 times. Investors are concerned about the future of fossil fuel energy as the globe shifts toward green sources, and they are reluctant to spend on oil and gas equities.
Healthcare equities also tend to be extremely inexpensive in the S&P 500. New pharma companies Viatris (VTRS), which was spun off from Pfizer (PFE) and grouped with Mylan last year, and Organon (OGN), which was spun off from Merck the previous summer, have the lowest prices in the market. Recently, spin-offs haven't performed well, and the brand-new equities and their generic names might fly under the radar for those who don't pay much attention to the healthcare industry specifically. Investors are more optimistic about Organon than Viatris.
AT&T (T) and Discovery (DIS) are the two lowest-priced companies in the S&P 500 telecommunication category, and both are involved in big mergers and acquisitions. Both are trading at around 7.5 times estimated profits for the coming year, compared to the group median of 20.8 times. AT&T will split off its WarnerMedia unit and consolidate it with Discovery around the middle of the following year, restoring the iconic American firm to its origins. Both firms have a ton of potential. Many shareholders may wait until the deals complete next year to decide whether to gamble on streaming entertainment via Discovery or wired and cellular telecom services via AT&T.