This article presents seven large-cap stocks that are regarded as cheap based on their price-to-earnings ratio. The price-to-earnings ratio tells an investor how much they are paying per share for every dollar of a company's profit.
You can find a stock's P/E ratio by dividing its stock price by its earnings per share. That looks like this:
P/E Ratio = Stock Price/Earnings per share (EPS)
For example, if a company is reporting earnings of $3 per share and their stock is selling for $30 per share, the P/E ratio is 10 ($30 per share/$3 per share). Many investors will look at a benchmark index like the S&P 500 as their guide for defining if a company's P/E ratio makes a stock cheap or expensive. At the time of this writing, the average P/E ratio for stocks in the S&P 500 was 14x to 17x. That is the range we're using for determining if a stock is cheap.
Of course, what is considered a “good" P/E ratio may depend on the market sector. For example, technology stocks tend to have a higher P/E ratio than the S&P average because they are projected to have stronger earnings and stock price growth than the broader market.
Click the "Continue to Slide #1" button to view the first company.
