Jacob Sonenshine

The stock market has bounced back aggressively from earlier this month, but there are a bunch of stocks that still appear cheap enough to buy.

The equal-weighted S&P 500, which measures performance for the breadth of stocks on the standard index, dove 16% from its highest close of the year in February to its lowest this month on the back of President Donald Trump's tariff announcements, which could hurt the economy. Since the low, the equal-weighted index is up 6%. At its low, the index had already reflected much of the potential damage to companies' earnings. Plus, Trump announced a 90-day pause on some tariffs, another factor encouraging buyers to come in to prop up the price of stocks.

The bounce happened quickly, so most stocks aren't screamingly cheap anymore. That's why Evercore strategists screened for the few that are, finding 20 names that are trading closest to their lowest forward price/earnings multiples in the past five years.

Some of the stocks in the screen have continued to rally Monday, with the equal-weighted S&P 500 up almost 1%. A few of the companies could see reduced earnings as a result of a weakening economy, so their stock prices may not be as cheap as they appear.

Considering these two issues, we identified companies in the screen that aren't gaining much Monday, and that are in fairly less-economically sensitive industries.

Five we found are Merck, Medtronic, Johnson & Johnson, Intuit, and Comcast.

A sixth is Procter & Gamble, the $392 billion maker of low-cost household essentials such as Charmin toilet paper, Tide detergent, and many other brands. The stock is trading at about 23 times analyst's expected earnings for the coming 12 months, only about 12% above its low in the past five years of 20.6 times. That's closer to Procter & Gamble's cheapest level versus the equal-weighted S&P 500, which trades 15.4 times, or 21% above its five-year low.

Shares look even more attractive when considering that earnings are likely to grow. Analysts expect sales to grow 3% annually over the coming three years to $92.6 billion in 2027, according to FactSet. Those expectations shouldn't be difficult to live up to, given that the company could easily lift prices without damaging consumer demand, as its costs rise on the back of tariffs. Management has delivered better-than-forecast sales in 15 of the past 20 quarters.

The business segment that analysts project to grow the fastest is healthcare, which includes Vicks cough drops and Crest toothpaste. That's key because it's one of the company's higher-margin segments, so its growth will help bring the overall margin higher. Also, Procter & Gamble will use some of its cash flow of more than $16 billion to buy back stock and reduce share count, driving earnings per share up by about 6% annually over the coming three years.

Earnings-per-share growth would drive the shares higher, given that the multiple is unlikely to drop much from here. A rising dividend, due to consistent cash flow and a growing cash balance, could nudge investors' total return (from stock price gains and dividend payments) into the double digit percentages annually.

Buy these stocks -- it's hard to go wrong with them right now.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

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April 14, 2025 16:41 ET (20:41 GMT)

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