Investors are often attracted to fast-growing companies with ambitious plans for the future. The challenge for investors is that these companies often trade at high valuations, meaning you’re paying a lot for future growth that may or may not come to fruition. But many of the world’s most successful investors have achieved attractive returns by focusing on companies that are attractively priced, which often means their stocks have low price-to-earnings ratios.
Here are 10 companies selling for single-digit price-to-earnings ratios and what that metric means for investors.
What is a price-earnings ratio and what does it mean?
The price-to-earnings ratio is a valuation measure used by investors to compare a stock’s price to its earnings per share. It’s a way to see how much you’re paying compared to how much you’re receiving in revenue. The ratio is calculated by dividing a stock’s share price by its earnings per share. Analysts use both rolling profits (the previous year’s profits) and forward profits (projections of what the company will earn in the coming year) in the calculation.
The level of a stock’s price-to-earnings ratio is affected by a number of factors, but some important ones include interest rates, the company’s future growth rate, and the market’s confidence in that growth. Investors are often willing to pay high multiples of a company’s earnings if they are confident that profits will grow significantly over time. Lower growth companies tend to trade at lower price-to-earnings ratios.
However, a low price-to-earnings ratio does not necessarily mean that the company will not grow in the future. Companies with low price-to-earnings ratios often face short-term uncertainty about their earnings, such as a possible recession or company-specific challenges. Warren Buffett and other investors have made a fortune investing in cheap stocks that are temporarily misunderstood by the market. They often benefit because a company’s earnings exceed expectations and its price-to-earnings ratio rises along with earnings.
Stocks with a single-digit price-earnings ratio
*Data below as of June 22, 2023. Source: TIKR Terminal and Yahoo! Finances
1.United Airlines (UAL)
United Airlines is one of the largest airlines in the US, operating major hubs in Chicago, Denver, Houston, Los Angeles, New York, San Francisco and Washington. DC United reported revenue of nearly $45 billion in 2023, but the airline sector is Concerns about the economy and recession could weigh on the stock.
Trailing price-earnings ratio: 9.1
Forward price-to-earnings ratio: 5.0
Dividend yield: n/a
2. General engines (GM)
General Motors is one of the largest automakers in the world and sells vehicles under well-known brands including Buick, Cadillac, Chevrolet and GMC. GM is investing to expand the capacity of its electric vehicles and plans to build 1 million electric vehicles in North America and more than 2 million worldwide by the end of 2025.
Trailing price-earnings ratio: 5.7
Forward price-to-earnings ratio: 5.9
Dividend yield: 0.96 percent
3. American Bancorp (USB)
US Bancorp is a Minneapolis-based bank that provides services such as lending, cash management, capital markets, trust and investment management. The bank had nearly 2,500 branches at the end of 2023, primarily focused in the Midwest and Western US. The shares fell along with other regional banks following the collapse of Silicon Valley Bank in March 2023.
Trailing price-earnings ratio: 8.9
Forward price-to-earnings ratio: 7.3
Dividend yield: 5.72 percent
4. CVS Health (CFS)
CVS Health is a healthcare company that operates more than 9,000 retail locations, more than 1,100 walk-in clinics, a pharmacy benefits manager with more than 110 million plan members and a senior pharmacy care business. The company is trying to reimagine healthcare and provide consumers with care when, where and how they want it.
Trailing price-earnings ratio: 23.0
Forward price-to-earnings ratio: 8.0
Dividend yield: 3.57 percent
5. M&T bench (MTB)
M&T Bank is a regional bank headquartered in Buffalo, New York, with roots dating back to 1856. By the end of 2023, the bank had more than 1,000 branches, primarily in the Eastern region of the US. The bank offers a wide range of financial services to consumers, businesses, professional customers, government agencies and financial institutions.
Trailing price-earnings ratio: 9.5
Forward price-to-earnings ratio: 7.6
Dividend yield: 4.26 percent
6. Verizon Communications (VZ)
Verizon is a leader in communications and technology services. Together with AT&T and T-Mobile, they provide the majority of mobile phone services in the US. Verizon generated more than $135 billion in revenue in 2023 and the stock has a high dividend. However, higher interest rates could hurt Verizon’s heavy debt burden as it is forced to pay more on its loans.
Trailing price-earnings ratio: 7.0
Forward price-to-earnings ratio: 7.7
Dividend yield: 7.16 percent
7. Capital One Financial (COF)
Capital One Financial is one of the largest banks in the US and specializes in credit cards and auto loans. Capital One is the third largest issuer of Visa and Mastercard credit cards in the US, and the bank serves customers through digital channels and its network of branches, cafes, call centers and ATMs.
Trailing price-earnings ratio: 7.5
Forward price-to-earnings ratio: 8.2
Dividend yield: 2.2 percent
8. Celanese Corp. (CE)
Celanese is a global chemical and specialty materials company serving a variety of industries, including automotive, construction, food and beverage, paint and coatings, and paper and packaging. Berkshire Hathaway bought a position in the company’s stock in the first quarter of 2023, and by the end of March 2023, the position was worth almost $1 billion.
Trailing price-earnings ratio: 7.9
Forward price-to-earnings ratio: 8.7
Dividend yield: 2.46 percent
9. EOG Sources (EOG)
EOG Resources is involved in the exploration and production of oil and natural gas. EOG operates in the Delaware Basin, South Texas and Rock Mountain regions, among others. As of December 2023, EOG’s total estimated net proven reserves exceeded 4.2 billion barrels of oil equivalent.
Trailing price-earnings ratio: 6.9
Forward price-to-earnings ratio: 9.3
Dividend yield: 2.91 percent
10. Fidelity National Information Services (FIS)
Fidelity National Information Services, or FIS, is a global provider of technology solutions primarily for financial institutions. FIS provides software that supports investment banks and asset managers and also plays a crucial role in payment processing for merchants. FIS announced in February 2023 that this would happen spin off its Merchant Solutions division within the next 12 months.
Trailing price-earnings ratio: n/a
Forward price-to-earnings ratio: 8.9
Dividend yield: 3.81 percent
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making any investment decision. In addition, investors are advised that the past performance of investment products does not guarantee future price increases.
