The Hunt for Hidden Value: Why Low P/E Stocks Could Lead the Next Market Surge
Despite a year of broad market gains, a surprising number of S&P 500 companies remain undervalued, presenting a potential opportunity for investors willing to look beyond the hype. A recent analysis by TD Cowen’s Tom Fitzgerald uncovered 47 stocks trading at single-digit price-to-earnings (P/E) ratios, with a significant portion poised for above-average earnings growth through 2027. This isn’t just a statistical quirk; it signals a potential shift in market leadership, favoring companies with strong fundamentals over those riding the wave of speculative fervor.
Unearthing the Undervalued: Beyond the Magnificent Seven
The S&P 500’s performance has been heavily influenced by a handful of tech giants – often referred to as the “Magnificent Seven.” As of recent data, these top holdings (Nvidia, Microsoft, Apple, Amazon, Broadcom, Meta, Alphabet, Tesla, Berkshire Hathaway, and JPMorgan Chase) account for over 40% of the SPDR S&P 500 ETF Trust (SPY). While these companies continue to innovate, their high valuations – many trading at over 30 times projected 2026 earnings – suggest limited upside potential compared to their more modestly priced peers. The focus on these market leaders has inadvertently created a blind spot for investors, overlooking companies with compelling growth prospects trading at significantly lower multiples.
The Power of the P/E Ratio: A 2026 Lens
Traditionally, investors focus on forward P/E ratios based on next year’s earnings estimates. However, with the calendar nearing Q4, Fitzgerald took a more long-term view, analyzing prices relative to consensus earnings projections for 2026. This approach provides a clearer picture of potential value, especially for companies with growth trajectories that extend beyond the immediate future. The S&P 500 currently trades at a weighted 21.9 times projected 2026 EPS. The stocks identified by Fitzgerald, and subsequently screened further, trade at a fraction of that multiple, offering a margin of safety and potential for substantial returns.
Beyond Airlines: A Broader Look at Low P/E Opportunities
Fitzgerald’s initial observation centered on United Airlines (UAL) and Delta Air Lines (DAL), both demonstrating strong performance despite low valuations. Expanding on this, a broader screen identified ten additional S&P 500 companies exhibiting both low P/E ratios (11.0 or less) and projected earnings growth exceeding the index’s 13.2% CAGR. These include:
- Everest Group Ltd. (EG)
- Coterra Energy Inc. (CTRA)
- Ford Motor Co. (F)
- United Airlines Holdings Inc. (UAL)
- Delta Air Lines Inc. (DAL)
- Devon Energy Corp. (DVN)
- Eastman Chemical Co. (EMN)
- Charter Communications Inc. Class A (CHTR)
- Global Payments Inc. (GPN)
- MetLife Inc. (MET)
Notably, Ford (F) stands out as the only company on this list that has already outperformed the S&P 500’s 2025 total return. This suggests that the market may be beginning to recognize the value in these overlooked companies.
Sector Diversification and the Energy Sector’s Potential
The list isn’t dominated by a single sector, offering a degree of diversification. However, the presence of energy companies like Coterra Energy and Devon Energy is noteworthy. With ongoing geopolitical uncertainties and a continued focus on energy security, the energy sector could experience sustained growth, making these companies particularly attractive. Furthermore, the cyclical nature of the energy sector means that current low valuations may represent an opportune entry point for long-term investors. You can find more information on energy market trends from the U.S. Energy Information Administration.
The Risks and Rewards of Value Investing
It’s crucial to remember that a stock screen is just a starting point. Low P/E ratios don’t automatically guarantee success. Investors must conduct thorough due diligence, assessing each company’s competitive position, management quality, and long-term growth prospects. The market may be undervaluing these companies for legitimate reasons, and it’s essential to understand those reasons before investing. However, for those willing to do the work, the potential rewards – outsized returns and a portfolio less reliant on a handful of mega-cap stocks – could be substantial.
As market dynamics continue to evolve, identifying these hidden gems will become increasingly important. The shift towards a more value-oriented approach could signal a broader recalibration of market expectations, rewarding companies that deliver sustainable earnings growth rather than simply capturing investor imagination. What undervalued stocks are on your radar? Share your thoughts in the comments below!
