You don’t have to pay a fortune for S&P 500 stocks with rising earnings. If you look closely, you will also find value-priced stocks in growth mode.
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Six companies in the S&P 500 Pure Value Index, including US airlines (AAL), United Airlines (UAL) and Allstate (ALL), are all poised to increase earnings by 50% or much more this year, says an Investor’s Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
And that says something. This means they’re growing much faster than the rest of the S&P 500. Analysts expect the S&P 500’s operating profit to rise just 0.8% this year, says FactSet.
Looking for value in the S&P 500
If there’s one trend in the S&P 500, it’s that investors are willing to pay for growth. That’s almost obvious any way you look at it.
The SPDR Portfolio S&P 500 Growth ETF (SPYG) is up nearly 20% this year. That far exceeds the 16.2% of the S&P 500. But it wipes out the 11.1% gain of the SPDR Portfolio S&P 500 Value ETFs (SPYV).
Meanwhile, investors’ preference for expensive growth stocks is very clear when you look at the S&P 500. The top 10 performing S&P 500 stocks have an average price-to-earnings ratio of 174 times trailing earnings. Investors just want to own stocks like Nvidia (NVDA), is expected to increase earnings by 138% this fiscal year ending in January, regardless of price.
But it turns out you can also find earnings growth in cheaper S&P 500 stocks.
S&P 500 earnings growth on a budget
If you’re looking for a cheap stock with fast-growing earnings, look to the sky. That’s a trait common to many airline stocks. Five of the six value stocks that will post massive earnings growth this year are all airlines.
Take American Airlines for example. The carrier’s adjusted earnings are expected to rise 565% this calendar year to $3.33 per share. That’s several times more growth than Nvidia. But guess what? While shares are up 22% year to date, they still trade for less than 4.2 times trailing earnings. That makes American one of the cheapest stocks in the S&P 500, while still being one of the fastest growing stocks.
It’s a similar story with rival United Airlines. The S&P 500 Pure Value index member trades for just 6.5 times trailing earnings. And yet it is expected to increase earnings by 339% this year.
And it’s not just an airline thing. Analysts think insurer Allstate is poised to post 151.9% adjusted earnings growth in 2023. Let alone that the stock is down 22% and is a permanent fixture in the value portion of the S&P 500.
Savvy investors know not to fixate on P/E ratios and valuations. But they also know how to track companies that show profit growth. And in some cases you can find both.
S&P 500 Value stocks are growing earnings like crazy
| Company | Ticker | Inventory YTD % ch. | EPS ch. estimated 2023 |
|---|---|---|---|
| US airlines | (AAL) | 22.2% | 565.2% |
| United Airlines | (UAL) | 36.9 | 338.5 |
| Allstate | (ALL) | -22.4 | 151.9 |
| Delta Airlines | (VALLEY) | 31.6 | 109.8 |
| Southwest airlines | (LUV) | -1.8 | 86.8 |
| Alaska Air group | (ALK) | 6.0 | 50.5 |
