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Cheap U.S. stocks with low price earnings ratios

Although not a perfect financial indicator, a low price earnings (P/E) ratio can signal a good company is undervalued.  Today’s post will highlight a few companies trading with a low P/E, companies you might want to consider for your dividend stock portfolio.  First up though a quick refresher about P/E ratios.

Price Earnings Ratio = Stock Price per Share / Earnings per Share

Expert opinions will differ on this but history tells us the average P/E ratio for the broad equity market is a number between 15-20.  This implies anything less than 15 might signal value and anything significantly higher than 20 might signal pricy.  Be mindful though industries have their own benchmarks for P/E ratios.  A P/E ratio in the technology sector is MUCH different than this ratio is the real estate sector.  However, within the industry itself when comparing apples with other apples, low P/E ratios can signal value and thus a buying opportunity, especially if a company has a strong balance sheet and good cash flow.  Let’s take a look at a few U.S. companies with a low P/E and some solid other metrics.

ConocoPhillips (COP:US) – as of July 7, 2013:

  • EPS = 6.16
  • Dividend Yield = 4.2%
  • P/E ratio = 10.1
  • Cash from operating activities at 12/2012 = >$13 B

Exxon Mobil (XOM:US) – as of July 7, 2013:

  • EPS = 9.82
  • Dividend Yield = 2.7%
  • P/E ratio = 9.3
  • Cash from operating activities = > $56 B

Chevron (CVX:US) – as of July 7, 2013:

  • EPS = 13+
  • Dividend Yield = 3.3%
  • P/E ratio = 9.1
  • Cash from operating activities at 12/2012 = >$38 B

Wells Fargo (WFC:US) – as of July 7, 2013:

  • EPS > 3.5
  • Dividend Yield = 2.8%
  • P/E ratio = 11.9
  • Cash from operating activities at 12/2012 = >$58 B

Aflac (AFL:US) – as of July 7, 2013:

  • EPS > 6.3
  • Dividend Yield = 2.5%
  • P/E ratio = 9
  • Cash from operating activities at 12/2012 = >$58 B

Do you use P/E ratios for part of your stock selection criteria?  Why?  Why not?  What U.S. stocks do you have your eye on?

Filed in: Stocks

11 Responses to "Cheap U.S. stocks with low price earnings ratios"

  1. I like to use P/E ratios as more of a gut check than anything when I add a new company into my portfolio – comparing to similar companies within the same industry

    Thanks,
    Michael

    • I do the same Michael. Comparing P/Es across sectors is unwise but within the sector, can yield where value lies. Like anything with numbers, all depends upon how you look at them.

      Cheers.

  2. I use P/E ratios but more from a historical perspective and to compare similar companies. If you try to compare a technology stock versus an O&G E&P you’ll get no value out of it. Back to the historical perspective, I like to compare to both the 5 and 10 year average PE ratios. It’s not perfect by any means because the previous PEs could be higher due to the higher expected growth but I think when you’re dealing with the blue chips you’re going to see them trade in typical ranges. M* has the 5 year average available, not sure about Yahoo! Fiannce.

  3. Steve says:

    I used to look at P/E ratios but after calculating them myself, I realized that they didn’t hold weight; for me at least.

    Stocks I bought with a high P/E kept going up in value to almost double what I paid.

  4. P/E ratios can be used as a good tool if looking side by side with like companies. It doesn’t hold a lot of value other than that, simply because it is limited in what it measures. At least that’s my take. But interesting to see the breakdown of these companies!

    • P/E ratios when you compare companies within the sector can signal value, but I think this shouldn’t be your only consideration. Like other metrics on its own, they are a good start.

  5. Liquid says:

    All pretty solid companies. I have CVX, and am looking at AFL. I think we’re starting to see more confidence coming into the US financial sector after what happened in 2008. People are still wary about the underlying economy but I think as housing prices continue to rise and job numbers improve all the US banks and insurance companies should do well into the future. One stock I’m looking at in the US right now is Freeport-McMoRan (FXC) It’s similar to our Teck Resources (TCK.B) up here, but FXC has a lower P/E at about 9 times :) It has a strong balance sheet and I’m pretty confident it will be a long term buy and hold company for me. The only problem is deciding when to get in lol. Right now it’s on a downward slide so I will wait for when the global demand for copper improves again :D

    • I don’t have CVX yet, and looking at AFL as well.

      Confidence is important for traders, and I think you’re right, you see that coming back Liquid. As for investors, we simply look for when confidence is shaken and make the purchase. I just wish I had some cash to invest in my RRSP right now.

  6. Solid five companies that you’ve highlighted. I especially like CVX and AFL.

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