The Stock Market Is Pricey. These 18 Stocks Got Cheaper Even as Their Prices Gained.
With the stock market’s valuation expected to fall, energy producers could be one place to hide.
Alexey Zaytsev/Dreamstime
The S&P 500 entered this year trading for a pricey 21 times analysts’ forecast for this year’s earnings. And with the Federal Reserve beginning to tighten monetary policy and increase interest rates, investors are predicting that the stock market’s valuation will fall in 2022.
One way for investors to navigate that challenge is to find companies whose earnings will grow faster than their valuations decline. But that requires making difficult assumptions.
A better option is to search for stocks that became meaningfully cheaper over the past year. Those companies have a head start on the broader market and could be a good place to hide.
That’s why Barron’s screened for stocks whose 2022 earnings estimates rose faster than their prices during 2021, making them cheaper in the process. We’ll use the most common measure of a stock’s valuation: its price-to-earnings ratio.
It isn’t hard to find stocks whose prices—the numerator in that equation—gained last year. Nearly 90% of S&P 500 companies finished in the green, and several dozen stocks returned 50% or more.
Now for the denominator: Analysts became more optimistic about 2022 earnings estimates as 2021 progressed. All but eight stocks in the S&P 500 now have higher consensus earnings estimates for 2022 than they did at the start of last year.
To find companies whose valuations have already been discounted heading into the new year, we screened the S&P 500 for stocks that saw their price-to-earnings multiples decline by at least 30% over the past year. We also excluded any company whose forecasted 2022 earnings were negative.
We were left with the 18 stocks below. As with any screen, it’s only a starting point for further analysis.
Getting Cheaper
These 18 stocks saw their price-to-2022-earnings multiple decline at least 30% in 2021.
| Company / Ticker | Increase in 2022 Forecasted EPS During 2021 | Stock Price Increase During 2021 | Price/2022E Earnings on 12/31/2020 | Price/2022E Earnings on 12/31/2021 | % Change in P/E Multiple |
|---|---|---|---|---|---|
| Host Hotels & Resorts / HST | 574.8% | 18.9% | 416.3 | 73.3 | -82.4% |
| APA / APA | 818.9% | 89.5% | 25.0 | 5.1 | -79.4% |
| MGM Resorts International / MGM | 353.6% | 42.4% | 207.4 | 65.1 | -68.6% |
| CF Industries Holdings / CF | 417.4% | 82.8% | 20.0 | 7.1 | -64.7% |
| Nucor / NUE | 441.3% | 114.6% | 17.0 | 6.7 | -60.4% |
| Mosaic / MOS | 300.0% | 70.8% | 13.0 | 5.6 | -57.3% |
| ConocoPhillips / COP | 301.9% | 80.5% | 20.5 | 9.2 | -55.1% |
| Under Armour / UAA | 171.8% | 23.4% | 59.2 | 26.9 | -54.6% |
| Penn National Gaming / PENN | 23.0% | -40.0% | 45.6 | 22.3 | -51.2% |
| Coterra Energy / CTRA | 123.4% | 16.7% | 10.3 | 5.4 | -47.7% |
| Dow / DOW | 93.3% | 2.2% | 16.6 | 8.8 | -47.1% |
| EOG Resources / EOG | 216.2% | 78.1% | 16.0 | 9.1 | -43.5% |
| Lyondellbasell Industries / LYB | 77.8% | 0.6% | 10.7 | 6.0 | -43.4% |
| Dish Network / DISH | 76.8% | 0.3% | 19.9 | 11.3 | -43.3% |
| Global Payments / GPN | 2.2% | -37.2% | 23.0 | 14.1 | -38.6% |
| Pioneer Natural Resources / PXD | 150.5% | 59.7% | 14.3 | 9.1 | -36.0% |
| Devon Energy / DVM | 332.0% | 178.6% | 12.7 | 8.2 | -35.5% |
| Moderna / MRNA | 252.9% | 143.1% | 13.4 | 9.3 | -31.1% |
Source: Bloomberg, FactSet
Some of the stocks on the list have simply gone from uber-expensive to very expensive. Take Host Hotels & Resorts (ticker: HST), a real estate investment trust that owns a portfolio of global hotel properties. It currently sports a price-to-2022-earnings multiple of 73 times—not cheap by any measure. But that’s down 83% from a multiple of 416 times a year earlier. Analysts have lifted their estimates of Host Hotels & Resorts
‘ 2022 earnings per share by nearly 575% over the past 12 months, while the REIT’s share price increased by 19%.
Shares of some pandemic-sensitive companies, such as MGM Resorts International (MGM), have likewise rallied, but not as quickly as their earnings estimates have increased.
Many of the biggest jumps in forecasted 2022 earnings per share come from energy and metals producers. Prices of oil, steel, and other commodities rallied in 2021, and are expected to remain elevated in 2022 as demand continues to rebound and supply is slower to return—boosting producers’ sales and earnings.
Oil and gas exploration and production firm APA (APA), for example, enjoyed a 90% increase in its share price in 2021. But analysts now expect the company to earn 819% more in 2022 than they projected a year earlier. So despite its soaring stock, APA’s price-to-2022-earnings multiple has declined from 25 times to roughly 5 times, a decrease of 80%. That makes it one of the cheapest stocks in the S&P 500 relative to this year’s earnings.
Fellow oil and gas firm ConocoPhillips (COP) and steelmaker Nucor (NUE) have followed similar trajectories. Despite hefty returns in 2021, analysts have become even more optimistic about the pair’s 2022 prospects.
Penn National Gaming (PENN), the S&P 500’s worst-performing stock in 2021, has also gotten meaningfully cheaper. The casino and racetrack operator, which owns a stake in Barstool Sports, saw its stock drop almost 40% last year. Still, analysts lifted their 2022 earnings-per-share forecast by an average of 23%. That brought down Penn’s price-to-2022-earnings multiple by half, from almost 46 times to about 22 times.
Other S&P 500 stocks that got at least 30% cheaper in 2021 relative to 2022 forecasted earnings include Moderna (MRNA), LyondellBasell Industries (LYB), Dow (DOW), Under Armour (UAA), and Dish Network (DISH).
Write to Nicholas Jasinski at [email protected]
