Although the 10-year bull market has lost some steam in 2018, it remains elevated. Valuations of the S&P 500 vary, but the Wall Street Journal places the price-earnings ratio of the index at 24.09 as of April 30, a level brushed in 2016 and otherwise unseen since before the market blow-ups of 2008 and 2002. The ratio also lies far above its average since 1870 of 15.70.
The Wall Street Journal’s calculations use the trailing 12-months figures for earnings, and the index appears less pricey based on 12-month forward consensus expected operating earnings per share used by Yardeni Research. The forward price-earnings ratio for the S&P 500 was 16.3 as of April 27, down slightly from 2017’s lofty heights that surpassed the financial crisis of 2008 and met the tech bubble of 2002.
But the rising tide has not lifted all ships. Particularly as volatility has struck as in recent months, investors noticed attractive stocks with low price-earnings ratios.
“Volatility returned to the market, as concerns about inflation, higher interest rates and a global trade war caused the S&P 500’s returns to range from +8% to -4% during the quarter,” said Bill Nygren (Trades, Portfolio), portfolio manager of the Oakmark Fund, in a first-quarter letter. “While we remain focused on long-term business fundamentals as we evaluate potential investments, we don’t mind taking advantage of higher volatility to increase exposure to high-quality businesses at more attractive prices.”
“We continue to find productive ways to invest our capital,” Co-CEO of Markel Corp. Tom Gayner (Trades, Portfolio) said in a 2017 annual letter.
“Not surprisingly, we’ve tried to capitalize on the current turmoil by initiating four new positions,” Wally Weitz, founder of Weitz Investments, said in a first-quarter letter.
The All-in-One Screener uncovered stocks that have low price-earnings ratios and that guru investors have flocked to. Stocks with the lowest price-earnings ratios that more than seven gurus purchased in the past six months were: Comcast Corp. (CMCSA, Financial), Union Pacific Corp. (UNP, Financial), CVS Health Corp. (CVS, Financial), Wells Fargo & Co. (WFC, Financial) and Broadcom Inc. (AVGO, Financial).
Comcast Corp. (CMCSA, Financial)
Comcast has a price-earnings ratio of 6.5 and 13 investors tracked by GuruFocus buying its shares in the past six months.
Comcast is the largest cable operator in the U.S. and owns CNBCUniversal, among other enormous holdings.
Its five-year growth rates are 9.5% for revenue, 26.2% for earnings per share and 9.2% for free cash flow. The company’s share dropped 20% over the past year.
Last week, Comcast made a $31 billion bid for European pay-TV company Sky, inciting an acquisition battle with Fox, who has also made an offer for the company.
The largest recent buy was made by investment firm Barrow, Hanley, Mewhinney & Strauss, which purchased 0.35% of its outstanding shares, acquiring 16,235,184 shares.
Over the past year, Comcast’s stock dropped 20% to $39.34 at close Monday. The company has a price-sales ratio of 1.74 and price-book ratio of 2.11, which are both near their respective five-year lows.
Union Pacific Corp. (UNP, Financial)
Union Pacific has a price-earnings ratio of 10, and seven investors tracked by GuruFocus purchased the stock in the past six months.
Omaha, Nebraska-based Union Pacific is the largest public railroad in North America, hauling coal, agricultural products, auto parts and other materials across. It as a market cap of $102.1 billion and had revenue of $21.2 billion in 2017.
Over the past five years, the company demonstrated growth rates of 2.7% for revenue, 18.8% for earnings per share and 12.7% for free cash flow.
The largest purchase came from Pioneer Investments (Trades, Portfolio), which acquired 1,017,823 shares of the company, increasing its position by 3,248% in the fourth quarter. The holding represents 0.14% of outstanding shares.
Union Pacific stock rose 19% in the past year. It traded for $131 Tuesday afternoon.
CVS Health Corp. (CVS, Financial)
CVS Health Corp. has a price-earnings ratio of 10.8, and eight investors purchased it in the past six months.
CVS is a pharmacy with a $69.75 billion market cap and $184.77 billion in revenue in 2017. Over the past five years, its growth rates totaled 14.3% for revenue, 14.6% for earnings per share and 15.8% for free cash flow.
The largest recent new buy was by Vanguard Health Care Fund (Trades, Portfolio), which picked up 3,308,218 shares, or 0.33% of the company, in the fourth quarter. Oakmark Fund’s Bill Nygren (Trades, Portfolio) also purchased 2.7 million shares in the fourth quarter, explaining why in a client letter:
“CVS is well positioned in a U.S. health care system that rewards scale, as the company owns the nation’s largest pharmacy benefit manager (PBM), the largest retail pharmacy and the largest retail clinic. Both the PBM and retail pharmacy segments are as concentrated as they have ever been, and we believe these lines of business protect existing players and pose serious challenges for new entrants. After underperforming the S&P 500 by nearly 60% over the past two years, CVS is now valued at less than 12x next year’s consensus earnings after adding back amortization of intangible assets. In our view, the market is underestimating the durability of the company’s competitive advantages across multiple end markets. Additionally, the pending acquisition of Aetna, Inc. would bring together two forward-thinking management teams and give them a broad suite of assets through which to address sector-wide trends, like the shift toward value-based care models and the increasing “consumerization” of health care.”
CVS also has a price-book ratio of 1.83 and price-sales ratio of 0.39. In the last year its stock dived 13% to a price of $69.50 as of Tuesday afternoon.
Wells Fargo & Co. (WFC, Financial)
Wells Fargo has a price-book ratio of 12.3, and even investors tracked by GuruFocus bought its shares in the past six months.
The financial institution has a $254.2 billion market cap and reported revenue of $87.12 billion for 2017. Its five-year growth rates are 2.4% for revenue and 3.1% for earnings per share. Free cash flow has declined at a rate of 39.6% for the period.
The largest purchaser of Wells Fargo in the past six months was Pioneer Investments (Trades, Portfolio), which started a 3,048,805-share stake that totaled 0.06% of the company.
Wells Fargo’s shares were down 4% for the year and traded at $52.40 Tuesday afternoon. The company has a price-book ratio of 1.41 and price-sales ratio of 2.99, which are both near respective one-year lows.
Broadcom Inc. (AVGO, Financial)
Broadcom has a price-earnings ratio of 12.7 and seven guru buyers.
Broadcom, a semiconductor company, emerged from the union of Broadcom and Avago, Hewlett Packard’s former chip division. It has a $94.12 billion market cap and $17.6 billion in 2017 revenue.
In the past five years, the company had five-year growth rates of 39.2% for revenue, 51.4% for free cash flow and 43.4% for book value. Its rate of growth in earnings per share was zero.
Of investors tracked by GuruFocus, firm Barrow, Hanley, Mewhinney & Strauss made the largest purchase of the company in the fourth quarter, acquiring 837,913 shares, for 0.34% of the company.
Broadcom has a price-book ratio of 3.63, which is near a one-year low. Its price-sales ratio of 5.24 is near a three-year low. The company’s stock price is up 2% for the past year to $229.20 per share Tuesday afternoon.
See the screener used to find these companies here.
