These S&P 500 Stocks Have Low P/E Ratios — Time to Buy?

Key Points

• P/E ratio is an essential valuation tool used by analysts to compare a stock’s current trading price to its earnings data. 
• MRK is currently trading at a P/E ratio of 13.28, with analysts predicting a potential 30% upside as institutional investors increase their holdings.
• Analysts predict a lower potential upside for VZ and XOM, but both shares offer high dividend yields to balance out benefits. 

Purchasing stocks at the right time can maximize your return on investment, especially if you plan to buy and hold shares toward a short-term or medium-term financial goal. A stock’s P/E ratio can give you an immediate idea of whether a stock is trading at, below or above fair value.

While the average P/E ratio varies by industry, most analysts consider a stock with a P/E ratio below 25 to be potentially undervalued by the market. 

 As the S&P 500 comes off its worst trading week of the year, a few of the index’s biggest names are showing rare low P/E values. Let’s take a look at four companies trading in the S&P 500 with P/E ratios that may indicate buying opportunities. 

Merck & Co. Offers a Billion-Dollar Market Cap, Sub-15 P/E Ratio

U.S.-based pharmaceutical giant Merck & Co., Inc. NYSE: MRK took a sharp hit to its share price in late February, trading near a 52-week low price of less than $90 per share. When combined with its $1.72 EPS and $226 billion market capitalization, Merck & Co. currently carries a competitive P/E ratio of 13.28. 

Analyst estimates indicate that stock experts generally agree this slump in share price is a temporary phenomenon. The company maintains a Moderate Buy rating, with an anticipated potential upside of 30% from its current trading price. Short interest trends support this assertion, with interest rates falling by more than 13% since last month. Signs could point to a rebound for MRK coming soon when combined with increasing institutional investments. 

Verizon Communications Brings Rock-Bottom P/E Ratio, Strong Dividend 

Another stock that’s had a rough year in terms of share price, Verizon Communications NYSE: VZ has seen just an 8.3% increase in share price since last year. Despite this, analysts predict a 6.66% potential upside and expected earnings growth of 3.62% at the same time. This gives Verizon a P/E ratio of 10.44, which is considered exceptionally low compared to other telecommunications stocks. 

This lower per-share trading value could be related to insider sales activity. In the last three months, insiders have sold more than $2 million in stock. However, institutional activity tells a different story; institutional investors purchased $7.4 billion in VZ stock last quarter compared to $3.32 billion sold.

Value investors looking for long-term income-generating stocks may be particularly interested in exploring Verizon while its P/E ratio is low. The company offers a 6.27% dividend yield, which is competitive with top income-generating sectors like REITs and energy. It also has a 20-year history of dividend increases, making it a strong pick to keep up with inflation. 

Exxon Mobil Generates a Strong Potential Upside, Increasing Earnings Growth

With a Moderate Buy consensus rating and a 17.43% anticipated upside, analysts are expecting a big year for Exxon Mobil NYSE: XOM. However, what analysts expect from EPS data is even more impressive than price estimates. Analysts predict a massive 21.40% increase in earnings from the company through 2025 despite missing its most recent earnings estimate by $0.10 per share.

While XOM’s share price is higher than the other picks on our list, at about $110 per share, the company still maintains a competitive P/E ratio of 14.04. Insider buying beat out selling, with $14 billion in shares bought versus $9.52 billion sold, another indicator of increasing analyst confidence. 

Exxon Mobil can be another strong long-term hold for dividend investors looking to generate long-term, stable income through retirement. While its dividend yield is lower than Verizon at 3.60%, Exxon Mobil has increased its dividend payment for the previous 42 years for an annualized three-year growth rate of 3.24%. This predictable, consistent annual dividend increase of about 1% can mean good things long-term for investors.