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Undervalued Large-Cap Stocks Are Everywhere, Despite the Overvalued Market

By traditional measures, U.S. stocks are more overvalued than they’ve been since the recession. But plenty of undervalued large-cap stocks remain.

By almost any measurement, U.S. stocks are technically overvalued. The S&P 500 has a price-to-earnings ratio of 26.5, its highest point since November 2009—which came during the throes of the recession-fueled market crash. Given that backdrop, I was curious how many undervalued stocks are left. So I decided to perform a search of undervalued large-cap stocks.

To my mild surprise, there are quite a few bargains still out there!

Undervalued Large-Cap Stocks Abound

As of this writing, there are 111 large-cap stocks with a trailing P/E ratio of 20 or less, and 35 of them have a P/E of 15 or less. Some of the names that popped up in the first screen (P/E under 20) were Apple (AAPL), JPMorgan Chase (JPM), Wells Fargo (WFC), Intel (INTC) and Walt Disney (DIS).

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Verizon (VZ), IBM (IBM), Gilead Sciences (GILD), General Motors (GM) and eBay (EBAY) all made the second list, with P/E ratios under 15. Those are some high-profile stocks with long track records of success!

And they’re not simply beaten-down stocks that have completely missed out on the recent rally. The average 2017 gain in the 10 undervalued large-cap stocks I just mentioned was 17.4%—shy of the 19.4% gain in the S&P 500, but not by much.

Even in an overvalued market, plenty of bargain stocks remain. And I know just the person to identify the best bargains for you.

Crista Huff is chief analyst of our Cabot Undervalued Stocks Advisor service, which specializes in finding undervalued stocks that also have immense growth potential. And Crista isn’t having much trouble unearthing stocks that meet her criteria these days. Here is a sampling of what she wrote to her subscribers this week:

“We’re going through a highly unusual period in the history of the stock market during which earnings estimates keep rising for a broad spectrum of companies. That’s because we’re experiencing a growing economy, deregulation and lower income tax rates, all of which contribute to rising corporate profits. (In addition, rising interest rates contribute to increased profitability at financial companies.)

“It’s easy to lose focus on why we invest in stocks and what makes stocks rise. Over the long-term, stock prices reflect corporate profits. When profits rise, share prices rise; when companies are struggling financially, share prices fall. Therefore, if politics and news media and market corrections compete for your attention and make you question your investment strategy, please focus on this: rising corporate profits will likely deliver capital gains to your stock portfolio in the next few years.”

Indeed, with three straight quarters of at least 6% earnings growth among large-cap companies, with 10.8% growth expected this earnings season, corporate profits are expanding at rates not seen since before the global recession. With that in mind, a 26.5 average P/E ratio doesn’t seem quite so overvalued. And the stocks trading at valuations well below that, like the ones mentioned above, are even greater bargains than they might normally be.

Where to Find More Value and Growth Stocks

If you want to know what other undervalued large-cap stocks are out there, I highly recommend subscribing to Cabot Undervalued Stocks Advisor. Crista’s three portfolios—Growth, Growth & Income and Buy Low Opportunities—currently features 14 double-digit winners!

Click here to learn more.


Chris Preston is Cabot Wealth Network’s Vice President of Content and Chief Analyst of Cabot Stock of the Week and Cabot Value Investor .