S&P 500: 12 ‘dirt cheap’ stocks are due for a rally, analysts say

The S&P 500 isn’t as cheap as it used to be – it’s still up 3.6% this year. But analysts still see relatively cheaply priced stocks as a result of the rally.

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Twelve stocks in the S&P 500, inclusive dish network (DISH), Moderna (MRNA) and energy company EQT (EQT), are cheap by today’s standards, trading for less than 10 times their adjusted earnings per share over the past 12 months, according to an Investor’s Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. That’s amazingly cheap when you consider that the average stock in the S&P 500 trades for more than double: 30 times earnings.

And yet analysts think all 12 of those 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 normal year.

The S&P 500’s sell-off in February after a robust January reminded investors that this market is still dealing with a lot of turbulence, says Nicholas Colas of DataTrek Research. Some cheaper stocks could finally get some attention as investors pull back from the more expensive investments that were already ramping up.

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

S&P 500 is ignoring valuations for now

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

So far this year, only six of the top 10 performing S&P 500 companies have a PE. That’s because four of the companies posted losses in the past four quarters. And get this: Two-thirds of the top 10 year-performing stocks this year that do have PEs are trading for higher valuations than the market. Take computer graphics chip maker Nvidia (NVDA) as an example. The stock is up nearly 60% this year, but it trades for nearly 134 times earnings.

But that’s not to say analysts can’t find potential winners who aren’t already bidding against such atmospheric valuations.

Find the next winners on the cheap

Analysts make no secret of their favorite cheap S&P 500 stock: Dish Network. They have sky-high expectations for the stock trading at just 3 times adjusted earnings per share over the past 12 months.

The stock is cheap, but analysts say it shouldn’t be. They claim the satellite broadcaster’s shares should trade at 28.40 apiece within 12 months. If they are right, that would mean an implied advantage of almost 160%. That’s the most optimistic outlook analysts have for stocks with such a low valuation. So far this year it has not worked. Shares are down more than 21% to 10.98.

However, analysts are optimistic and not based on growth. It’s more of a game where the stock gets knocked down too much. In fact, the company’s earnings are down nearly 70% in 2023 before rising 71% in 2024. However, if you’re only paying profit three times, you don’t need much growth, analysts say.

Moderna? A cheap S&P 500 stock?

Given Moderna’s tremendous opportunity to apply mRNA technology to many life-saving techniques, it’s surprising to see it as such a low-cost stock. It only trades at 6.9 times trailing earnings because the gains were so huge during the Covid-19 vaccine wave.

And while Moderna’s stock is down 23% this year to 137.86, it’s important to note that it remains one of the best-performing S&P 500 stocks since the Covid-19 outbreak. And analysts are optimistic. They call on Moderna’s stock trading at 222.06 per share in 12 months. If they’re right, that’s a 61% increase.

But again, the fundamentals are the reason the stock is cheap. Moderna plunges to a loss of $2.24 per share in 2023 and another loss of $2.55 per share in 2024. Key at Moderna will be new breakthrough treatment and accelerate return to profitability faster than 2026, analysts say pregnant.

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

Cheapest S&P 500 Stocks With Huge Upside

Based on analysts’ 12-month price targets

Sources: IBD, S&P Global Market Intelligence

Follow Matt Krantz on Twitter @mattkrantz

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