Despite recent weakness, the broad market is still richly valued. The S&P 500 (^GSPC -1.11%) is currently priced at 24.8 times its trailing earnings, according to numbers from Birinyi Associates, and priced at just under 20 times its projected 12-month profits. Both figures are above its long-term average price-to-earnings (P/E) ratios.
Not every name trading in the S&P 500 is trading at these above-average valuations, however. A handful of quality names are trading at single-digit earnings multiples for reasons that aren't apt to last. Here's a closer look at three of your best bets right now from this select group.
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1. Citigroup
Shares of Citigroup (C -0.49%) have been more than a little disappointing of late. The stock price is down more than 30% from last June's high, although understandably so. Last quarter's net income fell 46% year over year on a combination of higher costs and lower revenue. While the bank is continuing to shield itself from the fallout linked to Russia's invasion of Ukraine, as is the case with most companies, there's no completely clean escape for Citi.
Factor in the economic headwind that could stem from the 10 (give or take) interest rate hikes the Federal Reserve is planning to impose before the end of 2024, and the stock's poor performance actually makes a lot of superficial sense.
Now take a longer, more thorough look, and think back through history. It's not that the economy in general and banks, in particular, haven't faced serious hardships, but most of the time, matters don't pan out nearly as bad as it's feared they could. Indeed, while higher interest rates may crimp demand for loans, those higher rates mean the loans banks are extending are more profitable than loans being made at lower interest rates.
That's the long way of saying Citigroup's recent sellers have overshot their target. The trailing price/earnings multiple of 6.2 and the dividend yield of 3.9% are both too juicy to pass up here, even if most other investors don't see it yet.
2. Hewlett Packard Enterprise
Speaking of overlooked bargains, take a look at technology company Hewlett Packard Enterprise (HPE -1.73%). Its stock is priced at less than eight times this year's expected earnings, and closer to seven times next year's projected profits.
As is the case with Citigroup, the investor disinterest is understandable. This former technology titan isn't what it used to be. Revenue is only expected to grow 3% this year, and the same tepid growth rate is in the cards for next year. While the company's relatively new focus on cloud computing solutions -- and hybrid cloud in particular -- means its wares are marketable, it's a saturated, competitive market that's growing slowly itself. And players like Amazon and IBM appear better-positioned to capture most of whatever industry growth is in the cards.
What's not being priced into HPE shares, however, is the distinct possibility that one or more of its cloud computing solutions could be a much bigger hit than anyone expects.
Take its Greenlake edge-to-cloud platform as an example. It's seemingly just another edge computing solution, on the surface. But it's been selected to manage Japanese credit card company JCB's cloud computing operation, and chosen by Auckland, New Zealand's public transportation authority to optimize efficiency and improve safety.Those are impressive wins.
In other words, Hewlett Packard Enterprise isn't getting quite enough credit for creating products the world doesn't yet realize it needs. Time will solve that problem.
3. MetLife
Finally, add life insurer MetLife (MET -0.60%) to your list of undervalued stocks you can buy today.
It's not exactly a thrilling investment. This year's top line is projected to slide 3% below last year's, while next year's revenue should only reclaim that small amount of business likely to be lost in 2022. Earnings are a little more volatile, though on a net basis they seem no less static. This year's projected bottom line of $7.23 is within the range of per-share earnings the company has been driving since before the pandemic took hold, yet next year's expected profits of $8.13 per share (not to mention last year's $9.15 EPS) are also within that relatively wide range of earnings for the insurer.
There's seemingly just not a lot of net growth here. And, in a rough year marked by unexpectedly high payouts, those relatively normal levels of profitability can completely evaporate, even if only temporarily.
If you look at the bigger picture, though, MetLife is a long-term winner that's rewarded investors willing to step in during a lull. The stock's price is 130% higher than it was 10 years ago, and that's not counting the dividends it's dished out in the meantime. And it's a dividend that's more than 150% bigger than it was in 2012.
As it turns out, while unpredictable from one year to the next, the insurance business is predictable enough to manage in multi-year timeframes.
You can step into MetLife shares while they're priced at less than 10 times their trailing-12-month earnings -- and perhaps more importantly, while the dividend yield is a healthy 2.7%.
