Five For Friday- S&P 500 Stocks LEAST Dependent On Future Growth

Following last week’s screen for S&P 500 stocks most dependent on future growth, we use the same PVGO methodology to find five S&P 500 stocks with the lowest growth premium in the price. We follow the same process, except instead of seeking out the highest PVGO as a proportion of market price, we turn to stocks with that ratio closest to zero.

Last week, a reader commented on the lofty P/E ratios in the screen results (median of 154 and low of 118). This week’s screen results, in which the P/E ratios are slightly lower than the index, are a stark contrast from the high P/E ratios last week. Such a difference in P/E ratios between companies with high growth expectations and those without is logical.

One interpretation of this analysis is that buyers today are paying a fair price for the company’s current earnings, and any growth that’s realized comes at virtually no cost. The PEG ratios of our five stocks offer strong support for this point of view, with all besides GLW boasting extremely low PEG ratios (S&P 500 PEG = 2.5). Recall that the PEG ratio is a stock’s forward P/E ratio divided by 3–5-year EPS growth expectations, and it allows for a rough comparison of the “price” of expected growth across companies. Again, the low PEG ratios are a function of the fact that earnings in place justify 98%+ of the market price, yet 3–5-year growth expectations remain solid. If readers are looking for a bargain, it’s worth taking a closer look at these five stocks.

As we stated last week, the only criteria in this scan are that the stocks are members of the S&P 500, are not REITs, and have positive EPS over the trailing twelve-month period. We solved for PVGO as a proportion of market price and selected the five companies closest to zero percent.

Company Summaries

Target Corporation (TGT)

Corning Incorporated (GLW)

Humana Inc. (HUM)

FedEx Corporation (FDX)

Johnson Controls International plc (JCI)

Five for Friday

Five for Friday uses stock screens to produce five stocks that we expect will outperform if a particular investment theme plays out in the future. Investment themes may be relevant to the current or expected market, industry and/or economic trends. Investment themes may not always represent our current forecast. 

Disclosure

This report is not a recommendation to buy or sell the named securities. We intend to elicit ideas about stocks meeting specific criteria and investment themes. Please read our disclosures carefully and do your own research before investing.