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Barron's Highlights Four Low P/E Stocks That Are 'Good Bets', But Are They?

Jan 07, 2019

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A Barron’s report today notes that 103 companies in the S&P 500 Index are trading with P/Es below 10x, up from just 44 companies on the last trading day of September. The report highlights four stocks with single-digit P/Es that have received fresh “Buy” recommendations from Wall Street Analysts in the past 3 months. In light of this, we discuss the four stocks highlighted by Barron’s and give our take:

  • Barron’s begins by highlighting AT&T Inc. (T) and its 20% decline over the last year, which has driven its dividend yield to a massive 6.7%. While a yield this high would normally signal an expected dividend cut, Barron’s cites Cowen analyst Colby Synesael, who believes that AT&T dividend payments are safe based on 2019 company guidance. AT&T maintains a trailing P/E of just 5.79x and a forward P/E of 8.35x, as of Friday’s close.
     
  • AT&T is rated “Neutral” in our US Large-Cap Global Top Stock Ideas. 
     
  • Next, Barron’s identifies DXC Technology Company (DXC) as a cheaply priced company that investors should consider, discussing its recent merger the enterprise-services division of Hewlett Packard Enterprise (HPE) and recent partnerships with Amazon (AMZN) and Microsoft (MSFT) on cloud projects. DXC closed on Friday with a trailing P/E of 8.24x and a forward P/E of 6.50x.
     
  • DXC Technology Company is rated “Neutral” in our US Large-Cap Global Top Stock Ideas and “Attractive” in our US Information Technology Global Top Stock Ideas.
     
  • Barron’s then discusses Mylan N.V. (MYL), the company known for buying the rights to EpiPen in 2007 and steadily hiking its price from USD$50/injector to USD$600 for a two-pack. The Food and Drug Administration approved an EpiPen competitor from Teva Pharmaceutical Industries (TEVA) in August 2018 and Mylan has traded at a 10% average premium to its competitor since -- Barron's points out that Mylan is currently trading at a 10% discount to Teva. Mylan trades at a cheap trailing P/E of 5.51x although its forward P/E of 26.72x is much higher, as of Friday’s close. 
     
  • Mylan is rated “Attractive” in our US Large-Cap Global Top Stock Ideas.
     
  • Barron’s ends its report by highlighting banking giant Morgan Stanley (MS) as an undervalued opportunity. Barron’s points to Morgan Stanley’s shift towards a more stable wealth and asset management business in 2019, which is expected to account for 48% of profit in 2019, as a reason for readers to consider an investment in the multinational investment bank. Morgan Stanley has fallen 22% over the last year, driving its forward P/E to trade at a 25% cheaper level than its 5-year average. Morgan Stanley maintains a trailing P/E of 9.73x with a forward P/E of 8.11x, as of Friday’s close.
     
  • Morgan Stanley is rated “Unattractive” in our US Large-Cap Global Top Stock Ideas.

 

 

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